Permanent Insurance – Coverage for a Lifetime
Permanent life insurance products are designed to last a lifetime and offer guarantees that temporary life insurance cannot provide. Although term insurance is the most affordable type of life insurance, it does not build cash value or earn interest for the policyholder. With permanent insurance, the policyholder earns interest on the cash account that can be accessed when needed through policy loans or partial surrenders. The most popular permanent life insurance products are Universal Life and Whole Life.
Universal Life Insurance is a type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance), which is invested to provide a cash value buildup. The death benefit, savings component and premiums can be reviewed and altered as a policyholder’s circumstances change. Unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his accumulated savings to help pay premiums over time.
Whole Life Insurance, sometimes called “straight life” or “ordinary life,” is a life insurance policy which is guaranteed to remain in force for the insured’s entire lifetime, provided required premiums are paid, or to the maturity date. As a life insurance policy it represents a contract between the insured and insurer that as long as the contract terms are met, the insurer will pay the death benefit of the policy to the policy’s beneficiaries when the insured dies. Because whole life policies are guaranteed to remain in force as long as the required premiums are paid, the premiums are typically much higher than those of term life insurance where the premium is fixed only for a limited term. Whole life premiums are fixed, based on the age of issue, and usually do not increase with age. The insured party normally pays premiums until death, except for limited pay policies which may be paid-up in 10 years, 20 years, or at age 65. Whole life insurance belongs to the cash value category of life insurance, which also includes universal life, variable life, and endowment policies.