What is Permanent Life Insurance?
Posted in Life Insurance , Permanent Insurance
August 5th, 2009
Dictionary.com defines permanent (when used as a adjective) as:
- existing perpetually; everlasting, esp. without significant change
- intended to exist or function for a long, indefinite period without regard to unforeseeable conditions: a permanent employee; the permanent headquarters of the United Nations
- long-lasting or nonfading: permanent pleating; permanent ink
All that applies to permanent life insurance, that may also go by the name “whole life insurance.”
Permanent life insurance is a type of life insurance that remains active for the entire life of the policyholder (as long as the premiums are paid). During a policyholders life, the policy accrues a cash value and a pay-out amount in the form of a death benefit is guaranteed to be distributed.
There are several types of permanent life insurance that all have subtle differences and nuances. Options include:
- Traditional whole life insurance
- Variable life insurance
- Universal variable life insurance
Regardless of the type of permanent life insurance policy you choose, you must be aware that they are the most expensive types of life insurance coverage around. That is because you are not only paying for the insurance portion of the policy, but your premiums also go towards your investment and building your cash-value on the policy. The first couple years of the premium payments tend to go directly towards hidden commissions. Typically 100% of your first year’s premiums go directly towards paying fees associated with a permanent life insurance account.
Although permanent life insurance policies may sound great on paper, it may be very difficult to predict if this type of investment strategy will be beneficial in the long run. Ultimately, permanent life insurance is great for the extremely wealthy as it is an excellent tool for estate planning. That is because a permanent life insurance policy can be used to set up aninsurance trust that will cover the costs of estate taxes coming from the proceeds of the policy.
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