Permanent Life Insurance
What it is
Permanent life insurance is any type of life insurance policy that is designed to remain active from the time it is issued until the death of the covered person. Whole and universal life are the most common types of permanent insurance.
Non-permanent insurance refers to term life insurance, which is a type of policy that only provides coverage for a certain number of years.
Who it is for
Permanent life insurance is best suited to people who have a life insurance need that is not expected to go away. It can also benefit those who may need to borrow money in the future, as permanent policies build cash value that can be borrowed against.
Permanent policies are not for those who simply want the cheapest type of insurance available.
How it works
Once a policy is issued, the policyholder begins making periodic premium payments. In exchange for these payments, the insurance company agrees to pay a death benefit to the policy’s beneficiary if the covered person dies. This death benefit is usually tax-free to the beneficiary.
While the policy is in force, it will build cash value. The policyholder can borrow from this value for any reason and repay the loan on their own time.
Different types of coverage in existence
Among the types of permanent insurances, the difference lies primarily in how the policy builds value.
Whole and fixed universal policies grow at a fixed rate. Indexed universal policies grow according to the performance of a stock market index. Variable universal life (VUL) policies have growth that is tied to the policy’s underlying investments. While VUL policies have unlimited growth potential, they also present the risk of loss.
It may sound obvious, but that doesn’t make it any less true: the primary benefit of a permanent policy is its permanence. The knowledge that the policy will never expire or renew at a higher cost gives many people peace of mind.
The ability to borrow from the policy’s cash value is another major draw for universal life sales.