Permanent life insurance can save your family when faced with the untimely death of the policyholder. People call it an investment for your loved ones, but what exactly entails permanent life insurance, and how does it differ from term life insurance?
Permanent life insurance covers your entire life so long as your premium is paid regularly.
It starts from the date of purchase and continues until your death. There are two main benefits, one of which is the death benefit that you might be familiar with. Upon death, the beneficiary will earn the benefits per the policy’s statement.
The other benefit is the cash value, a portion of the premium set aside for savings, a sort of investment that generates interest (when applicable). Some companies might offer to use the cash value to pay off the premium costs when it rises. It can also be withdrawn.
There are mainly two types of permanent life insurance: whole life insurance and universal life insurance.
If you’re someone who doesn’t want to have to keep track of the price of the premium and manage your cash value, whole life insurance is a great choice. Whole life insurance is popular as it promises a fixed premium rate and returns on the cash value investment.
It does cost more, but higher value ones can also include dividends to policyholders.
Universal life insurance is another type of permanent life insurance with considerable flexibility. The premium cost is usually much more affordable but would rise as you age if you wish to keep the same benefit. Companies typically allow you to reduce costs, given that you let go of some benefits to keep the insurance.
Some types of universal life insurance also accumulate cash value. But depending on the type, the interest rate can be volatile and may not even generate any income. In a worst-case scenario, one’s poor investment decision can lead to losing all the cash value.
What about term life insurance vs. permanent life insurance?
The main difference between the two is the time length. Term life insurance doesn’t cover your whole life. They’re usually termed for up to 30 years at most. Permanent life insurance, however, lasts up to 120 years for some companies.
Cash value accruement also happens only with permanent life insurance. Term life insurance doesn’t usually have one. If you don’t die during the term, the company keeps all the money you’ve paid.
But term life insurance is a lot more affordable than permanent life insurance. With a $500,000 permanent life insurance policy, the cost ranges from $1500 to $30,000, depending on the type.