In a whole life insurance policy, the policy holder pays a specified premium during a specified period of time. Premiums can be high and are inflexible; that is to say, the amount that you pay cannot be changed or adjusted, according to your current income.
Whole life insurance does however, have a promised death benefit and a cash value. Things such as expense charges or mortality will never lower the cash value that the policy promises.
The money accrued (earned) from whole life insurance, however, can be low and those who buy whole life insurance often purchase “riders.” These are extra insurance benefits, such as insurance on accidental death, which can be obtained by paying an additional premium.
Universal life insurance, on the other hand, is a newer type of life insurance, with the same coverage as whole life. However, premium payment values are not fixed and the internal rate of return will most likely be higher. Universal life insurance also offers more flexible death benefits.
Variable universal life insurance, like universal life insurance, has cash values attached to it. The two differ, however, in how the cash accounts are treated and how the money will be taxed.
Limited pay life insurance is another kind of permanent insurance. In a limited pay policy, the insured is given a certain period of time in which to pay the premium. After the time period elapses, if the premium was paid as contracted, a premium will no longer be owed, but the policy will still be in effect.
A common limited pay life insurance policy is the twenty year limited pay, which means that the policy holder will pay the premium for a period of twenty years, after which the policy matures. Yet another kind of limited pay life insurance is considered paid-in-full when the policy holder reaches the age of sixty-five.
Still another kind of permanent life insurance is called an endowment policy. Endowments are policy packages that reach maturity (or endow) before a certain age. Payment of endowments is usually done annually and the payment is much, much higher than premium payments for whole life or universal life insurance.
This is because the paying period is much, much shorter and the policy maturity date comes earlier. An advantage to endowments, however, is the fact that the cash accrued (earned) can be withdrawn or loaned, much sooner, than can be done with other types of life insurance.
Permanent life insurance is a great thing to have, if you have people depending upon you for financial support and if you have the money to make the premium payments.
If you think permanent life insurance is for you, then be sure to consult your independent insurance agent before making any decisions. He/she will be able to provide you with the most current information and get you quotes from multiple insurance providers.
Life insurance, when chosen carefully, is a good investment for anyone who wants to build a secure future, whether for him/herself or for his/her family.
Next time, we’ll take a look at term life insurance and the pros and cons of those kinds of policies.