Permanent life insurance is life insurance that is available for your use until your death – no matter when that is. Unlike term insurance, there is no ending period or termination date for your policy. Many times, permanent life insurance is also called 'cash value' life insurance because the premiums you pay are for 'pure' coverage and any associated expenses, with the remainder of your balance in a cash value account managed by the insurance company. The cash value of your policy grows depending on the type of policy you buy (universal life, whole life, or variable life). Any interest and earnings are tax-deferred until withdrawn or become part of the death benefit amount when you die. Permanent life insurance usually has a higher premium than term life insurance.
As with any insurance, it is very important to keep
paperwork and/or company name available to your beneficiaries when the time
arises. It is as simple as registering on a life insurance database to
guarantee this information will never get lost.
Many people use permanent life insurance to cover long-term
needs since the coverage you pay premiums on is good for the rest of your life.
There is no annual renewal, no need to provide proof you are insurable (i.e. medical
exams) and the policy locks your premiums so you don't need to fret over
increasing premium costs as you age or if your health declines. Cash value
policies are similar to annuities in that all the interest and earnings grow
income tax free unless you surrender the policy or begin to withdraw from the
account. You can actually grow quite a bit of equity in your policy over the
years and may actually end up with a benefit greater than the initial amount of
the policy.
You are allowed loans and withdrawals from the cash value
account of your policy, with a fixed or variable rate interest assigned to
loans. However, if you withdraw a loan against your account it will reduce the
overall amount of death benefit available to your beneficiaries by the amount
of the loan. It will certainly reduce the available cash value and could
conceivably cause the policy to lapse. If you surrender the policy with an
outstanding loan you could also face heavy tax penalties. Withdrawals from the
policy are tax free up to the amount you've paid in premiums but this may not
be the case if your policy is considered a Modified Endowment. Withdrawals and
loans from a Modified Endowment policy
are taken first from earnings, making them fair game for income tax laws.
Unfortunately, the advantages to a cash value, permanent
life insurance policy are weighed with a few disadvantages. First, premiums for
permanent life insurance are usually higher than for a comparable term policy,
at least during the early years. Initially, you are paying more than is needed
to pay for the insurance so you build the cash value account, or fund, in order
to offset the higher cost of insurance when you are older. It is also possible
to purchase a variable life insurance policy. Variable life insurance policies
use investment opportunities to grow your cash value account, leaving them
exposed to financial gain or loss depending on how the investments perform.
Losses directly cut into the value of your cash account and could affect the
total amount of the policy on your death; a minimum death benefit is almost
always guaranteed, however.
“TO BE THE BEST IN SERVING OUR MEMBERS BY PROVIDING PEACE OF MIND THAT THEIR BENEFICIARIES RECEIVE THEIR INHERITANCE”
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