There are several options available to you when it comes to life insurance policies. One of the most popular ones is the permanent life insurance policy. The best part about a permanent life insurance policy is that it provides you with lifelong insurance protection.
In short, the policy is going to pay out a death benefit to you if you end up dying tomorrow or if you end up living to be a hundred. Another positive aspect of the life insurance policy is that it has a savings element attached to it, which will grow on a tax-deferred basis and may also become substantial over time.
However, because of the policy’s savings element, the premiums are generally higher for permanent life insurance than for term life insurance policies. Even if that is the case, the permanent life insurance policy is the better choice because the premium in a permanent policy will remain the same. In a term policy, the premium can go up substantially every time you renew the policy.
There are several different types of permanent insurance policies, including the likes of whole (ordinary) life, universal life, variable life, and variable/universal life insurance. In a permanent life insurance policy, the cash value is different from the face value amount. The cash value is the amount of money available to you, and the face amount is the money paid at death.
There are several ways you can end up using the cash savings from the policy. For instance, you can take out a loan against the policy, or you can surrender the policy before you die to collect the accumulated savings.
Reasons to Choose Permanent Life Insurance Policy
Many people tend to prefer term life insurance over permanent life insurance because of the lower premiums. However, there are tons of benefits that you can avail of with a permanent life insurance policy. If you’re weighing the pros and cons of the policy, here are some of the main reasons why you should choose a permanent life insurance policy:
1. Permanent Life Insurance Earns Cash Value
You should know that all types of life insurance policies will provide the beneficiaries with a death benefit, most of which are tax-free. However, a permanent life insurance policy also earns cash value, besides the death benefit protection.
You can borrow the policy’s cash value as a policy loan, which gives a liquidity characteristic to the permanent policy. However, you should note that loans will reduce both the cash value and death benefit by the amount you have borrowed.
2. Permanent Life Insurance Provides Lifelong Coverage
As long as you keep paying the necessary premiums, the permanent life insurance policy will only terminate when the insured person dies or if the owner surrenders the policy. Most permanent policies will mature at a stipulated age, which is generally between 100 to 121 years.
If the insured individual is alive at 100, premiums are no longer required, but the death benefit will be distributed when the insured dies. However, some policies will simply disburse the cash value or pay out the death benefit if the insured manages to live to maturity.
3. Whole Life Insurance Premiums Never Change
When you go with whole life insurance, which is a type of permanent life insurance, the premium is going to be guaranteed to never change throughout the policy. When the policy is issued, the declared premium will remain the same, regardless of the insured’s age.
A policy that has originally been issued for $60,000 with a $600 annual premium will provide a $60,000 death benefit when the insured dies. It doesn’t matter if the insured is 40 or 100; the death benefit doesn’t change. That goes the same with the premium. The $600 premium will stay the same as long as the policy is in force.
Even though permanent life insurance may be the more expensive option than term life insurance, it also provides you with financial protection when the insured becomes deceased. It can gain a cash value that can be used during their lifetime.
If you’re wondering how this applies to you, it is time you obtained a life insurance quote. If you’re starting with a tight budget, you may be drawn towards the more inexpensive term life insurance policy. However, if your budget is flexible, and you want to have access to a life insurance policy’s cash value, then a permanent life insurance policy may be the best option for you.
There’s also the option of getting two life insurance policies. You can get a term life insurance policy that protects your loved ones with a higher death benefit at a lower cost and a smaller permanent life insurance policy that will accrue cash value and provide you with lifelong coverage.
Now that you’ve understood the important features of a permanent life insurance policy, you should continue to discuss your options with a financial professional to determine the best life insurance policy for your unique situation.
If you’re caught sitting on the fence, refer back to this article and examine the reasons why you should consider choosing a permanent life insurance policy. It will provide you with some brilliant insight that will make the decision easier for you at the end of the day.