Permanent Life Insurance
What is a Permanent life insurance?
A Permanent life insurance is a good choice, if you are looking for a permanent guarantee that will protect your family, cover the cost of your funeral and let you make plans for your estate. A permanent life insurance typically comes with a “cash value” saving element, where the policy holder is able to build the cash value by investing their cash value in an investment account.
Premiums for this type of insurance are much more expensive than those for term coverage. There are three main types of permanent life insurance: whole, universal, and variable.
Is permanent life insurance right for you?
Permanent life insurance may be right for you if you are looking for:
- Lifetime coverage
- Guaranteed investment return
- Fixed premiums
Whole life insurance
Whole life insurance, sometimes called “straight life” or “ordinary life,” is a life insurance policy which is guaranteed to remain in force for the insured’s entire lifetime, provided required premiums are paid, or to the maturity date.
Although premiums may seem higher, they can accumulate cash value and are invested in the company’s general investment portfolio. This policy is highly suitable for long-term responsibilities such as dependent adult child’s care or post death expense.
Universal life insurance
You get the same type of coverage and cash value as you would with whole life, but with greater flexibility. You have the liberty to either reduce or increase your death benefit, and pay your premiums at any time in any amount once there is money in the account.
When a payment is made, a part of it goes into an investment account, and any interest accrued is credited to your account. The interest you earn grows on a tax-deferred basis which increases your cash-value.
Variable life insurance
With Variable life insurance, you receive the same death protection as with other types of permanent life insurance, but have control over how your cash value is invested. You can either invest your cash value in stocks, bonds, or money market funds.
The value of your policy has more growth potential, as well as more risk. If your investment do not perform well, your cash value and death benefits may decrease. There are some policies that provide a guarantee that your death benefit will not fall below a certain level. Premiums are fixed on this insurance.
Life insurance is a legally binding contract between an insurer and a policy holder that protects your family’s financial position. The insurer guarantees payment of death benefit to named beneficiaries when the insured dies.
Life insurance guarantees your family and dependants don’t suffer financially when you die. It can aid in funeral cost, debt, your children’s education, and your family’s standard of living when they no longer have you to support you.
- Parents with minor children – If a parent or caregivers income could create financial hardship. Life insurance can make sure the children will have the financial resources they need until they can support themselves.
- Parents with special-needs adult children – Children who require lifelong care and are unable to be self-sufficient can benefit greatly from life insurance. The death benefit can be used to fund a special needs trust that a fiduciary will manage for the adult child’s benefit.
- Elderly – Pay for “end of life” expenses, such as cost of settling an estate, or cost of funeral and burial.
- Adults who own property together – Death of a spouse, or partner would mean that the other could no longer afford loan payments, upkeep, and taxes on the property.
- Families that owe estate taxes – To provide funds to cover the taxes and keep the full value of the estate intact.
- Families that can’t afford funeral expenses – Life insurance can fund funeral cost of a loved one.
- If you name a minor, it is recommended you name a trustee to receive the funds for that minor, and that trustee be properly instructed how to use the funds on the minor’s behalf, or hold the funds until the minor is of age
- Always name a contingent, or secondary beneficiary in case you outlive your first beneficiary
- Update the beneficiary named on your life insurance policy. Be specific about who
There is no standard amount that fits everyone’s needs. You must analyze your financial situation and determine how much money would be required to maintain your beneficiaries’ standard of living or meet the need for which policy you’re purchasing.
An insurance agent could give recommendation based on your personal/financial situation.