Permanent Life Insurance

Posted in Life Insurance

January 15th, 2009

Permanent life insurance is defined as a form of life insurance in which the policy is for the life of the insured, and the payout is assured at the end of the policy. Whole life insurance and endowment insurance are two types of permanent life insurance policies.

Permanent life insurance is offered as an alternative to term life insurance, in which the death benefit is only paid to the beneficiary if the insured dies within a fixed period (which could be anywhere from 1 to 30 years). Permanent life insurance extends over the entire life of the insured, and as such, it offers a guaranteed settlement.

Several types of permanent insurance have been introduced over the years.

Whole life insurance, also known as cash surrender life insurance, is a fixed-premium, fixed-return life insurance plan. Whole life was the first type of permanent insurance to be offered and combines pure insurance with an investment vehicle, building cash value across the life of the policy while maintaining consistent premiums.

Universal life insurance offers consumers more flexibility in premium payments, allowing them to skip premiums, or play variable rates. Some universal policies also allow you to withdraw cash from the policy without interest.

Variable life insurance is a permanent policy along the lines of universal life, but this type of policy allows consumers to manage their own investment portfolio, shifting the risks of investments to the consumer. Some variable contracts allow policy holders to skip premiums, pay variable rates, or pay in a lump sum. As long as the cash value of the policy exceeds its expenses, the policy remains in force and the cash value grows. However, the death benefit fluctuates with the performance of the investment portfolio.

All permanent policies have favorable tax treatment, allowing you to defer taxes on your investment interest until the policy is surrendered. However, permanent policies are substantially more expensive than term life insurance, since the cost of the eventual payout is built into the investment component.

For some, the use of a life insurance policy as an investment vehicle may be beneficial. However, you should compare policies and consult with your life insurance agent or broker to determine which option is right for you.