If you want to be sure to leave something behind for your family and to cover funeral costs, you may be considering investing in life insurance. Understanding how life insurance works and which type is most appropriate for you is important before you choose a plan. Here’s a look at how permanent life insurance works.
What is Permanent Life Insurance?
Before you even decide what type of permanent life insurance you want, you need to know what permanent life insurance is and if it is the best choice for you. Permanent life insurance lasts much longer than term life insurance policies, which typically come in 5 year increments with options up to 30 years. Permanent life insurance slowly builds what is effectively a savings account. Rather than being a lump sum when you kick the bucket, you can take out loans against your policy. However, most people tend to opt for term policies because they are easier to understand.
Choosing a permanent policy is best done with the assistance of a financial planner or other expert—especially if they are not connected to your life insurance policy. Ask someone besides your insurance broker. Permanent insurance policies tend to be considerably more expensive than term insurance. This is balanced by providing you with life insurance no matter how long it is before you pass away. Whereas term life insurance only covers a set number of years before you need to start a new policy. Here’s a look at the different types of permanent life insurance.
Whole Life
A “whole life insurance” policy come with a premium plus a slow-growing amount of cash you can draw against. If you do take a loan against that cash and don’t pay it back before tragedy strikes, that amount will come out of your death benefit. Basically, with a whole life policy, you’re paying a set amount per month with an ordained amount of money that will be given to your beneficiaries when you die, plus you have a savings account along with it. How much that savings account grows depends on the company you work with.
Variable Life
Variable whole life insurance policies are similar to standard whole life policies, with an extra perk. You receive a standard premium, fixed death benefit, and a savings account. However, a variable policy allows you to do more with the savings account. For example, you can invest it into stocks and bonds. Unfortunately, this also means you may wind up losing a good chunk of that savings. Make sure to look for a company that prevents any declines in your savings from coming out of your death benefits.
Universal Life
Also called adjustable life insurance, universal life insurance provides a little bit more flexibility than forms of whole life policies. Again, you have a savings account and death benefits. The main difference is that rather than a fixed premium and a fixed death benefit, you will have opportunities to adjust those—perhaps increasing them if you come into a nice promotion.
Additionally, your premium is arranged over a year. You don’t have to make your payment every month at the risk of losing your policy, as long as you make your payments for the year. This gives you a little bit more freedom during times of financial hardship as well.
Variable Universal
Variable universal life insurance essentially takes all the different little aspects of other policies and throws them all together. Want to be able to change your death benefits? Looking forward to making investments with that savings account? You can do those things and more. However, variable universal is the single most confusing form of permanent life insurance. So many variables means it becomes quite complex. Be very, very certain that you understand what you’re getting before you get it.
Survivorship
Survivorship permanent life insurance plans are designed for couples who don’t feel the need to leave two inheritances to their progeny. Rather than paying for two separate policies and winding up with two separate payouts, you can combine your policy with your spouse or other partner. Whoever you name to receive death benefits will only get them once both of you have passed away. This is a less expensive means of providing a really great parting gift.
