Everything You Need to Know About Permanent Life Insurance
Life insurance is a crucial part of financial planning, as it offers security and peace of mind to the most important people in your life. But choosing the right policy for your circumstances is a huge decision. And you need to have all the facts before you can make the right choice.
The first decision you will need to make is whether to opt for a term or permanent life insurance. We’ve put together a quick guide to permanent life insurance to help you decide if it provides the right type of coverage for you and your family.
What is Permanent Life Insurance?
Permanent life insurance policies don’t expire when you reach a certain age. This type of coverage remains in place until you die. As long as you pay your premiums on time, your provider will payout in the event of your death — regardless of your age.
The other option available to you is term life insurance. This type of coverage pays a benefit upon death for a pre-determined number of years. While cheaper, term life insurance usually ends when you reach a certain age.
How Does Permanent Life Insurance Work?
People pay permanent life insurance premiums to ensure a specific death benefit for the people they leave behind. Each payment increases the policy’s cash value, which can be borrowed against by the policyholder.
When you buy permanent life insurance, you usually need to wait a few years before you can borrow against the policy. This gives the cash value time to grow. If you fall ill and need to pay significant medical expenses, for example, you can borrow against your life insurance. You can also use the funds to fund your retirement plans, repay an existing home loan, or renovate your home.
As long as your permanent life insurance policy remains active, you don’t have to pay any tax on the earnings it delivers. And when you die, the death benefit goes directly to your beneficiaries.
The Pros and Cons of Permanent Life Insurance
The primary advantage of a permanent life insurance policy is its lifelong coverage. And the value of the policy increases with each premium — on a tax-deferred basis. This type of coverage allows you to borrow against its cash value, so you can use it as a supplementary source of income during your retirement.
Unfortunately, the benefits delivered by a permanent life insurance policy come with a hefty price tag. The premiums are significantly higher than those for term life insurance products. This makes them a poor investment choice for young families who are struggling to make ends meet.
A lot of people decide to convert their cheaper term life insurance to a permanent product as they grow older. A life insurance expert should be able to advise you if this is something you’d like to do.
The Different Types of Permanent Life Insurance
Purchasing permanent life insurance for the first time can be a little daunting, as there are several options on the market. For example, whole life insurance provides lifelong cover at a price fixed when the policy is purchased.
If you opt for universal life insurance, you have the option of increasing and decreasing the death benefit. This is useful if your income fluctuates or if your circumstances are prone to changing regularly. And once the target cash value of your universal life insurance policy is reached, you have the option of paying premiums when you want — or not at all.
Universal Life Insurance
If you need maximum flexibility from your policy, universal life insurance is a good option. When you pay a premium, some of the money is used to cover the cost of providing the death benefit. But the rest of the money goes towards growing the policy’s cash value, which earns interest all the time. And the earnings generated are usually tax-deferred.
If you want a policy that can adapt to your changing circumstances as you go through life, universal life insurance is the best option. You can increase and decrease your premiums depending on your financial circumstances at the time.
Indexed Universal Life Insurance
Indexed Universal Life Insurance (IUL) is a little riskier, but the potential rewards are significant. This product pays a significant death benefit to your beneficiaries when you die. But it also generates a cash value — linked to a major stock market index.
You can choose to split your payments between a fixed product and a product linked to an index in order to reduce your risk exposure. The fixed account generates interest based on a rate that’s set when you purchase the policy. The index account generates interest based on the market’s performance.
Guaranteed Life Insurance
If your personal circumstances leave you ineligible for most forms of coverage, guaranteed life insurance might give you something to leave your loved ones when you die. Complete a simple application process, and you should be able to secure a limited death benefit. However, you may need to pay premiums for two years or more before a beneficiary can make a claim.
It’s worth noting that most guaranteed life insurance policies provide a maximum death benefit of $25,000. But this is usually more than enough to cover funeral expenses and modest credit card debt.
Get Permanent Life Insurance Advice from the Experts
Permanent life insurance gives you the peace of mind that comes with protecting the financial future of the people you love. But with so many options available, it’s best to seek advice from experienced life insurance experts before you make a decision. Begus Insurance Group is here to help you plan for your future. Contact us today, and we’ll help you choose a permanent life insurance policy that’s right for your circumstances.