Things to Know About Permanent Life Insurance

Written by , May 9, 2011

Things to Know About Permanent Life InsuranceWhen it comes to buying life insurance, shopping around is a must. There are lots of life insurance companies to choose from, and you can buy through an agent or directly from the company. Most companies offer a variety of life insurance products, and some will meet your needs better than others.

The first thing that life insurance shoppers need to know is that there are two main types of life insurance: term and permanent. Term life insurance is purchased for a period of up to 30 years. The policyholder is covered for the duration of the term as long as premiums are paid, and then the coverage ends. Permanent life insurance, on the other hand, covers the insured for the rest of his or her life if all premiums are paid.

Here is some advice on things you should know before you buy permanent life insurance.

  • There are various subtypes of permanent life insurance. The most common is whole life insurance, which offers a fixed monthly premium and a fixed return. Universal life insurance gives customers more flexibility in the premium amount. Variable life insurance gives the customer control over the investments involved.
  • Permanent life insurance is significantly more expensive than term life insurance. That’s because with term life insurance, there is no guaranteed payout. The difference in price is a major factor in many consumers’ decisions on which type of policy to purchase. Agents often suggest buying as much permanent life insurance as one can afford, and making up the difference in the amount of insurance you need with term life insurance.
  • Permanent life insurance builds cash value. You can borrow against the premiums paid into a whole life insurance policy, and you can even make permanent withdrawals from a universal life insurance policy without penalty. Parents often use this feature to help pay for their children’s college educations.
  • When you buy a permanent life insurance policy, you’re making a commitment. Most policies charge hefty fees if you surrender your policy within the first several years, which means you won’t get the full cash value. And if you cancel too early, the policy may not even have any cash value.
  • If you borrow money against your permanent life insurance policy and the amount of unpaid interest plus the outstanding balance goes over the policy’s cash value, the policy will be terminated. Also, if you simply stop making payments, the insurance company will pay your premiums with the cash value until it runs out, which will terminate the policy and leave you with nothing to show for it.
  • Permanent life insurance lets you rest assured that your beneficiaries will be taken care of no matter how long you live. It also allows you to borrow money when faced with large expenses. But even with these features, permanent life insurance is not for everyone. If you are on a tight budget or aren’t sure you can commit to paying premiums for years to come, term life insurance might be a better choice for you.

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