Permanent Life Insurance: Is It Right for Me?

Shawn Plummer

CEO, The Annuity Expert

When it comes to life insurance, there are two main types: term and permanent. Most people choose term life insurance because it is more affordable and provides protection for a specific period of time. However, permanent life insurance can be a good option for some people, especially if they want to leave a legacy for their loved ones. This guide will discuss the pros and cons of permanent life insurance so that you can decide if it is right for you.

What is permanent life insurance?

Life insurance policies that do not expire are referred to as permanent life insurance. Unlike term life insurance, which pays a death benefit for a specific number of years, permanent life insurance covers the insured for their entire lifetime as long as premiums are paid on time.

How does a permanent life insurance policy work?

The amount paid each month is used to maintain the death benefit and allow the policy to develop cash value, which may be borrowed by the policy owner. After purchasing permanent life insurance, there is generally a waiting period before borrowing is allowed. This allows money to build up in the policy.

When your waiting period is up, you may withdraw cash to help you when you need it most. If you have an emergency medical condition, for example, the money value can be used to pay for health costs. Many policyholders utilize cash-value in addition to these reasons, such as saving for retirement or increasing retirement income.

Permanent life insurance policies typically have a tax-deferred cash value, which means you won’t pay taxes on any gains until the policy comes to an end. Your beneficiaries will get the death benefit when you die as the insured.

What are the pros and cons of permanent life insurance?

As opposed to term life insurance, permanent life insurance policies frequently have a cash value component and provide permanent coverage rather than limited duration. You may withdraw your money value or take out a policy loan as it grows.

However, when purchasing a life insurance policy, one thing to consider is how much coverage your family would require in the event of an accident. Permanent insurance has far more premium costs than term policies and may not be a good investment for youngsters with children and considerable expenses.

If your family’s financial situation is only temporary, a term life insurance policy may be the better option. Most term policies allow you to convert to a permanent policy in a limited amount of time.

What are the distinctions between various forms of permanent life insurance policies?

When selecting the right permanent life insurance policy, you have several alternatives to evaluate, each of which is meant to be kept for the rest of your life. However, there are several nuances to consider when picking out a permanent life insurance plan for yourself.

  • Whole life insurance is a form of permanent life insurance, with no premium increases throughout the policy’s duration. It also has a set interest rate and death benefit guarantee.
  • Universal Life Insurance is similar to Whole Life Insurance in that it is intended to cover you for the rest of your life. You may change or increase the death benefit with universal life insurance. You might be able to pay premiums at other times if you have funds built up in the cash value and can be used to pay for insurance costs.

Universal life insurance

Universal life insurance is a form of permanent life insurance mixing aspects of term life insurance with the option to build cash value. This sort of permanent life insurance comes with more choices than whole life coverage.

You pay a premium that is allocated to cover the life insurance cost, and the rest of your money is placed in cash value investments, which grow tax-deferred over time.

You can alter the premiums on your universal life insurance policy yourself, as well as how much money you put into the cash value component.

The Benefits

  • lifetime protection
  • flexibility to raise and lower your payments as you see fit
  • cash value generally isn’t taxed as it grows.  

Indexed universal life insurance

If you’re searching for a lifelong insurance plan with the flexibility of universal life and a cash value that provides more significant growth potential, you may want to consider indexed universal life insurance.

How does indexed universal life insurance work? 

IUL, which stands for indexed universal life, is a type of life insurance that gives your loved ones a death benefit if you die. It can also generate cash value in your lifetime based on market fluctuations in a stock market index like the S&P 500.

Premiums are allocated into a fixed account, an index account, or a combination of both with IUL.

  • The fixed account earns interest at a set rate.
  • The index account earns interest at a rate that reflects stock market performance.

You don’t participate in the stock market directly; instead, indexes are used as a “measuring stick” to determine your interest rate. In addition, your money is protected against negative market declines thanks to a zero percent floor.

Guaranteed life insurance

If you don’t qualify for another type of life insurance, but still want to leave something behind for your beneficiaries, guaranteed life might be a good permanent life insurance solution. In addition, there are no medical exams or health questions required when purchasing Guaranteed Life Insurance.

The insurance policy is in effect for the rest of your life. However, some guaranteed life insurance requires you to keep your policy for at least two years before receiving a death benefit. If you die before the two-year deadline, your beneficiaries will receive the money you’ve paid into the plan up until your death.

The payout is usually limited to around $25,000. This permanent life insurance policy is ideal for seniors who want to make sure their funeral expenses and outstanding debts are paid.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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