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Permanent Life Insurance Defined

Life Insurance

Permanent life insurance refers to whole life insurance. It is referred to as permanent because, once you purchase it, a death benefit will be paid no matter when you pass away as long as you keep paying the policy premiums.

What is Permanent Life Insurance?

Life insurance falls into two categories: term life insurance and permanent life insurance. Term life insurance provides you with coverage for a specified term period. Anywhere between five and thirty year terms are common in term life insurance. If you buy term life insurance, your death benefit will only pay if you die during the period specified in the insurance contract. If you reach the end of your term, you can either renew your policy, usually for higher premiums, switch to a whole life policy, also for higher premiums, or make the decision that you no longer need insurance

Permanent life insurance provides you with coverage for life, usually at fixed premiums (or premiums fixed within a certain range). Permanent life insurance also has a cash value component in most cases. This means you pay more than it costs to insure you, and your policy accrues a cash value. The cash value can be borrowed against, used to provide you with income, or in some cases sold.

Types of Permanent Life Insurance

Permanent life insurance consists of several types of insurance

  • Fixed premium whole life insurance: Your premiums are set at a fixed level, which you pay every month for as long as you have the policy. The monthly premiums are determined based on your age when you purchase the policy, your health and lifestyle and other related factors. When you are younger, the premiums may be less than it costs to insure you, since the cost increases as you age, and these premiums are averaged out over the life of the policy.
  • Universal life insurance: This policy provides you with a bit more flexibility. The policy specifies a range of payments, and you can pay any amount within that range. If you pay at the lower end, your cash value component may be smaller, or in some cases, your death benefit may be affected.
  • Variable life insurance: With variable life insurance, you get more choice regarding what the cash value component or your whole life policy is invested in. You can choose a riskier investment for a potential higher rate of return, or a safer investment for a guaranteed lower rate of return.
  • Variable universal life insurance: This permanent life insurance combines the features of a universal policy and a variable policy, allowing you flexibility both in how much you invest and where it is invested.

Should You Buy Permanent Life Insurance?

Permanent life insurance is a good investment for those who want to provide a death benefit no matter when they die, to provide the ultimate protection for beneficiaries. It is also a good choice for those who want to use life insurance as an investment vehicle. Whether it makes sense to buy permanent life insurance depends on your current and projected future financial needs. An insurance agent or financial planner can help you determine if permanent life insurance is right for you.

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