Permanent Life Insurance

What it is

A life insurance policy is a type of financial product that guarantees a death benefit to be paid to the policy’s beneficiary when the owner dies. There are two basic types of life insurance: permanent and temporary. Permanent policies are designed to remain active from the time of policy’s issue to the end of the insured person’s life. Temporary policies are intended to provide coverage only for a stated number of years.

Who it is for

Permanent life insurance is designed for people who do not expect their need for life insurance to go away. Because permanent life insurance policies build cash value, they are also useful for those who may have a need to borrow money from their policy.

How it works

Like all insurance policies, the first step in obtaining permanent life insurance is applying for a policy through an insurance agent. A medical exam is usually required as well. Once the policy is issued, the policyholder makes periodic premium payments to the insurance company. If the owner dies while the policy is active, the insurance company will pay the policy’s death benefit according to the policyholder’s wishes. These death benefits are usually tax-free.

Different types of coverage in existence

Permanent life insurance can be broken down into two main categories: whole and universal.

Whole life insurance has a death benefit and premium amount that remain level for the life of the policy, as well as a cash value that grows at a fixed rate.

Universal policies have flexible premiums and death benefits. They can grow either at a fixed rate of interest (fixed universal), based upon the performance of a stock market index (indexed universal) or based upon the performance of the policy’s underlying investments (variable universal).

Major benefits

The primary benefit of a permanent policy is that the policyholder doesn’t have to worry about the policy expiring or renewing at a higher rate. Permanent policies can also provide financial peace of mind in the form of a cash value-form in which money can be borrowed for any reason.