Are You Ready to Make Sense of Permanent Life Insurance?

With so many types of permanent life insurance and all of the technical terms used, it can be tough to make sense of it all. We're going to help you sort through it all.

PERMANENT LIFE INSURANCE INSURES YOU FOR YOUR ENTIRE LIFE

In simple terms, permanent insurance insures you for your entire life. It never needs to be renewed and it usually never expires. When you have a permanent policy you can be insured as long as you would like to be, up to and including the day you pass away. This is the single feature that is common across all of permanent policies.

Permanent insurance can be purchased at any age, although the premiums you have to pay will be much lower if you purchase it at a younger age. This is because your insurance company has more years to accumulate enough money to pay your death benefit.

(The death benefit is the money which must be paid to the beneficiary of your life insurance policy when you pass away.)

PERMANENT LIFE INSURANCE USUALLY HAS A CASH VALUE

You should be aware that most permanent policies include both life insurance and a cash value. The cash value is basically a type of savings or investment account that is built into your life insurance policy. So part of your insurance premiums are being put into this savings acount for you. The only type of permanent insurance that does not have a cash value is a term to 100.

THERE ARE FOUR MAIN TYPES OF PERMANENT LIFE INSURANCE:

1. Whole life insurance – A permanent insurance policy that usually has a guaranteed investment savings account tied to it.
2. Term to 100 insurance – A permanent insurance policy that does not have any savings included with the policy.
3. Variable life insurance – a variation of whole life insurance that offers a guaranteed death benefit, but the interest rate on the investment savings will fluctuate with current market conditions.
4. Universal life insurance – a permanent insurance policy that allows you more control over where the savings.
   
   

MORE ABOUT THE CASH VALUE OF PERMANENT INSURANCE

The savings portion usually accumulates tax free like an IRA (or RRSP in Canada). Depending on the type of policy you have, you can access the savings through a loan or withdrawal which may be subject to taxation.

Any loan or withdrawal from the cash savings may also reduce the death benefit payable to the beneficiary of your policy. Since the terms of each policy vary, you would need to ask your insurance company or read the policy to find out for sure.

The fact that you have to borrow your own money in the form of a loan is one reason that I prefer term life insurance to permanent insurance. It's sort of like opening a bank account and regularly depositing money into it. A few years later when you want to withdraw some of your own money, the bank tells you “I’m sorry, but you can’t withdraw any money from your account, but we would be happy to loan you some of your savings and charge you interest on it until you pay back your own money in full”.

CONCLUSION

Hopefully this has helped you make some sense of permanent life insurance. I invite you to read more on the subject. Please check out some of the more popular articles listed below. Or you can see a complete list of our life insurance articles.

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HOW TO GET THE BEST DEAL ON LIFE INSURANCE

Use our life insurance calculator to get an estimate of how much life insurance you need. Then get several quotes to compare from HometownQuotes. (Canadian? Use Kanetix instead)

Fill out one form and will get you several free personalized life insurance quotes. It saves you the hassle of having to shop around yourself to see who is offering the best product at the best price. Go to HometownQuotes now to get your free quotes today. (Canadian? Use Kanetix instead)

PS: Make sure you only buy term life insurance. Anything else and you're wasting your money!