So you’ve decided you want permanent life insurance. Perhaps you don’t want to pay money to an insurer for a term life policy, only to have the money lost at the end of the period—assuming that you (the insured) are still healthy and well.
With permanent life insurance policies, the money you pay goes toward your coverage for life and there is a guaranteed payout if you hold onto the insurance until your death. Permanent life insurance, also known as whole life insurance, can be a great option for those who want coverage regardless of when they die, want to use life insurance as a way to leave an inheritance or want to have an investment component in their policy. That said, permanent life insurance is pricey. If you believe permanent life insurance is the right choice for you, take a look at the types of coverage available to you.
Traditional Whole Life Insurance
Whole life insurance is the most common form of permanent life insurance. Whole life has a guaranteed death benefit and fixed premiums. It also accumulates a cash value, based on a steady, but slow return rate. You can borrow against the cash value, though you must pay the amount back with interest to avoid a decrease in your death benefit.
Variable Life Insurance
This type of permanent life insurance allows you to invest in stocks, bonds and money market mutual funds. You essentially place your cash value in an investment account that is managed by your life insurance provider. Your policy will likely grow quickly compared to the steady, slow rate of a whole life policy, but there is more risk involved. If your investments aren’t successful, your death benefit could decrease. Depending on the insurer, a minimum payout may be guaranteed.
Universal Life Insurance
Universal life insurance gives you more flexibility than other forms of permanent life coverage, as you’re allowed to use your cash value to offset premiums or build your death benefit. You can adjust how much you pay for your premium each year and raise or lower your death payout, as long as you’re paying a minimum amount. The point of this insurance is to be flexible throughout life—as sometimes premiums may be easier to pay at one stage of life than at another.
Variable Universal Life Insurance
When variable and universal life insurance are combined, you receive the features of both of these policies. You are able to invest for faster growth, with the added risk, and still have the benefit of adjusting your premiums and death benefit amount. However, there are a lot of moving parts in this type of insurance which can make it confusing. It may be best to speak with a financial advisor, especially if you’re looking to use your variable universal life insurance as an investment for the future.
Survivorship Life Insurance
Survivorship life insurance protects two lives, typically spouses, under one policy. However, the death benefit only pays out after both of the insured have passed away. The draw of this type of permanent life insurance is that it ensures an inheritance to heirs, and can be used to help pay funeral costs, estate taxes and more. It also typically costs less than insuring two people.
Compare these 5 types of permanent life insurance to find the option that works best for you and your situation. Remember to receive a few quotes from insurers, as premium rates can vary significantly.