Buying Permanent Life Insurance

Benefits of Permanent Life Insurance Policy Permanent life insurance policies earn cash value over time. The cash grows tax-free within the policy until it is withdrawn. Policy owners can borrow against their policy in the form of a loan. Unlike regular loans, the money is distributed tax-free and the money does not have to be repaid. Also, the policy benefits from individually owned permanent life insurance policies are received tax-free by the beneficiaries. Whole Life Insurance Policy A whole life insurance policy is considered the traditional life insurance plan. It provides a level death benefit for beneficiaries to receive when the insured dies. Owners of whole life policies lock in policy values as well as premium amounts and payment schedules during the time of application and cannot be changed. This provides policy owners with a straightforward understanding of what they are paying for. Universal Life Insurance Policy A universal life insurance policy is essentially a term life insurance policy with a cash value account. Policy owners must pay the minimum premium amount to offset the costs of insurance as it will rise gradually. There are two types of universal life insurance policies: Option A and Option B. Option A provides a level death benefit by using the cash value as part of the payment. This lowers the insurer financial responsibility and makes this option cheaper for the policy owner. For example, if a universal life policy has $35,000 in the cash value account and the policy’s face value amount is $75,000, then the insurer will pay $40,000 with the 35k to pay beneficiaries. Option B universal life policies work like whole life insurance plans as the cash value is added to the face value amount, which are both paid to beneficiaries. When Considering a Permanent Life Insurance Policy Policy owners of whole life insurance policies cannot miss a premium payment or their plan will collapse. Although universal life plans allow miss payments as premiums can be paid from the cash value account, policyowners can risk a lapse if they miss too many payments. Also if a policy loan is not paid back before the insured dies, then the benefit payment will be reduced by the outstanding amount.