
Permanent life insurance is a type of coverage that lasts a lifetime, as long as premiums are paid. It can provide a guaranteed death benefit to beneficiaries.
There are several types of permanent life insurance, including whole life and universal life. Whole life insurance has a guaranteed cash value component, which can grow over time.
Whole life insurance premiums are typically fixed and remain the same over the life of the policy. This can make it easier to budget for the coverage.
Universal life insurance, on the other hand, has a flexible premium structure and can be invested in various assets.
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What Is Permanent Life Insurance?
Permanent life insurance is a contract with a life insurance company that provides protection throughout your entire life.
Unlike term insurance, permanent life policies don't have a specified end date, so you're covered for as long as you pay premiums.
The death benefit is typically paid out income tax-free to beneficiaries, which can be a huge relief for loved ones.
A portion of premiums goes to the cost of insurance, another part to administrative costs, and the rest is put in the policy's cash value, where it grows over time.
The cash value can be used for a policy loan or accessed in other ways to supplement retirement savings and help meet future financial goals.
Types of Permanent Life Insurance
Permanent life insurance offers a range of options to suit different needs and risk tolerance. If you're considering a permanent life policy, you'll want to explore the various types available.
Whole life insurance is a type of permanent life policy where premiums never change. This means you'll pay the same amount every year, and your cash value will grow at a guaranteed fixed rate. You may also be eligible to receive annual dividends, which can boost your cash value.
Standard universal life insurance, or UL, allows premiums to vary within a certain range. However, you may eventually have to pay higher premiums to keep your policy in force. The cash value grows at an adjustable market interest rate, which can fluctuate.
Variable universal life insurance is another type of permanent life policy that lets you invest your cash value in subaccount market investments. This means you assume the risk for any losses, but you also have the potential for higher returns.
Indexed universal life insurance ties your cash value growth to the performance of a broad market index, such as the S&P 500. This type of policy has minimum and maximum caps to limit your investment risk.
Here's a brief summary of the four main types of permanent life insurance:
It's essential to research and compare different types of permanent life insurance to find the one that best fits your needs and budget.
Cost and Coverage
Permanent life insurance can be a significant investment, but the cost varies depending on several factors. The average rates for a $500,000 whole life policy can range significantly among policy types.
The cost of permanent insurance premiums is impacted by age, gender, tobacco use, overall health, and the amount of coverage. Generally, permanent life insurance costs more than term life insurance because it provides more benefits and can be used in ways that term life can't.
Here's a breakdown of typical rates for healthy male and female nonsmokers at different ages:
The younger you are, the less you'll pay for permanent life insurance. This is reflected in the charts, which show that rates increase with age.
Cost
Permanent life insurance can be a significant investment, with costs that vary depending on factors such as age, health, and coverage amount.
The cost of a permanent life insurance policy is typically higher than that of a term life insurance policy, because it provides lifetime coverage.
You'll need to pay premiums on your policy for as long as you want to keep it, which can be a significant ongoing expense.
However, if you don't let the policy lapse or surrender it, you can keep paying premiums and enjoy lifetime coverage.
The cost of permanent life insurance is a long-term commitment, but it can provide peace of mind and financial protection for your loved ones.
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Cost
The cost of permanent life insurance can vary significantly, but whole life insurance tends to be higher than universal life. The cost of a $500,000 whole life policy for applicants in good health can be substantial.
The cost of permanent life insurance premiums is impacted by various factors, including age, gender, tobacco use, overall health, and the amount of coverage. The younger you are, the less you'll pay.
Whole life insurance rates tend to be higher than universal life, and term life insurance is generally the cheapest option. For example, a 30-year-old nonsmoker can expect to pay around $16 per month for term life insurance.
Here's a rough idea of what you might expect to pay for permanent life insurance at different ages:
Keep in mind that these are just rough estimates and your specific policy cost will vary based on your individual circumstances. For instance, a 30-year-old nonsmoker might pay around $4,301 per year for a whole life policy, compared to $3,861 per year for a woman of the same age and health status.
For more insights, see: 40 Year Term Life Insurance Policy
Pros and Cons
Permanent life insurance has its advantages and disadvantages. One of the main pros is that it provides lifetime coverage, meaning your beneficiaries will receive a death benefit no matter when you pass away.
You can also tap into the policy's cash value while you're still alive, which can be a great way to access some of your money when you need it. This can be especially helpful in times of financial emergency.
Take a look at this: When Are Surrender Value of Life Insurance Taxable
Permanent policies can also be customized with riders, allowing you to add additional features to your policy.
On the other hand, permanent life insurance is typically more expensive than term life insurance. In fact, it can cost significantly more, which may not be feasible for everyone.
If you borrow from the cash value and don't pay it back, the insurer will typically reduce the death benefit by the same amount, which can have significant consequences for your loved ones.
Here are some key differences between permanent and term life insurance:
Cash Value and Benefits
Cash value grows on a tax-deferred basis in permanent life insurance policies, allowing it to accumulate faster than other types of savings accounts. This means you won't have to pay taxes on the gains until you withdraw them, giving you more time to let your money grow.
You can access the value of your permanent life insurance policy in several ways, including surrendering the policy, withdrawing cash, taking out a loan, or using the cash value to pay premiums. Surrendering the policy will give you the cash surrender value, minus any surrender charges.
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Mutual insurance companies, like Guardian, can pay dividends to policyholders based on policy cash value and company performance. These dividends can increase your cash value and contribute to your overall wealth. However, dividend payments are not guaranteed.
The four main ways to use the cash value of your permanent life insurance policy while you're still alive are surrendering the policy, withdrawing cash, taking out a loan, or using the cash value to pay premiums. Withdrawals are non-taxable as long as they don't exceed the amount paid into the policy.
Tax benefits of permanent life insurance include tax-deferred cash value growth, income tax-free death benefits, tax-efficient loans, and tax-efficient withdrawals. The death benefit is paid out income tax-free to beneficiaries.
Here are the four ways to access the value of your permanent life insurance policy:
- Surrender: Cancel the policy and take the cash surrender value payment, but you'll no longer have life insurance protection.
- Withdrawal: Typically withdraw cash from your permanent policy, and the money is non-taxable as long as it's less than the amount paid into the policy.
- Loans: Use your policy cash value to secure a loan that grows at a fixed or variable loan rate set in the contract.
- Premium payment: Use the cash value to pay part or all of your premiums, making it easier to keep your coverage intact if your income declines.
Who Should Get It?
If you're considering permanent life insurance, there are certain individuals and situations where it might be a good fit.
Families with young children may want to consider permanent life insurance to ensure financial stability during critical years. This can provide a death benefit to support their children's education and living expenses if a parent passes away.
Business owners can use permanent life insurance to fund buy-sell agreements, provide key person insurance, and offer employee benefits. This helps maintain business continuity and protects the company's financial health.
High-net-worth individuals may want to consider permanent life insurance to pay estate taxes, provide liquidity for heirs, and offer a tax-efficient way to transfer wealth. This ensures that their estate is preserved and passed on according to their wishes.
Individuals with special needs can use permanent life insurance to provide a death benefit that supports them financially. This ensures they have financial support even after the individual who was providing for them is no longer there.
Some scenarios where permanent life insurance might be a good fit include:
Term vs. Permanent Life Insurance
Term life insurance is a popular choice for younger families who need coverage until they pay off most of their debts and accumulate enough savings. It's often used to provide temporary protection that lasts for a set period of time.
Term life insurance typically will expire well before the end of your life, but you can usually extend term coverage once the initial period ends, often at a higher premium.
Many term life policies offer the option to convert the coverage to a permanent policy later, which can be appealing for someone with medical issues or chronic conditions that might make a new policy prohibitively expensive. This conversion feature can often be done without needing to take medical exams or meet other qualification standards.
Permanent life insurance, on the other hand, provides long-term coverage that lasts for a lifetime, as long as premiums are kept current. Its premiums are usually much higher than term life insurance, but people who get permanent policies typically have earned enough money to afford the increased costs.
A unique perspective: Long Term Care Insurance vs Life Insurance
p.article.sections.frequentlyAskedQuestions
How much a month is a $500,000 whole life insurance policy?
As of October 2024, a $500,000 whole life insurance policy for a healthy 30-year-old costs approximately $440 per month. However, your personal rates may vary based on individual factors.
What are the downsides of permanent life insurance?
Permanent life insurance policies are not convertible, meaning you'll lose paid premiums if you no longer need coverage. This can be a significant disadvantage if your insurance needs change over time.
How long does it take for permanent life insurance to build cash value?
Permanent life insurance typically starts building cash value within 2-5 years, but significant accumulation takes decades. Consult a licensed agent for personalized cash value projections.
Do you get money back from permanent life insurance?
Yes, you can receive money back from a permanent life insurance policy through its accumulated cash value. This cash value can be accessed before your death, but it's essential to understand the policy's terms and potential tax implications.
p.article.sections.sources
- https://www.nerdwallet.com/article/insurance/permanent-life-insurance
- https://www.securian.com/insights-tools/articles/term-life-vs-permanent-life.html
- https://www.guardianlife.com/life-insurance/permanent
- https://www.investopedia.com/terms/p/permanentlife.asp
- https://www.newyorklife.com/articles/term-or-permanent-life-insurance
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