Permanent Life Insurance

A permanent life insurance policy does not expire and the policy cannot be canceled by the insurance company for any reason (except in the event of fraud in the insurance application). Therefore, unlike term insurance, the insurance company will eventually have to pay out the benefit.

A permanent life insurance policy has a maturity date, usually when the insured reaches age 95 or 100. The benefit is paid out in the event of the death of the insured or the insured reaches the maturity date, whichever occurs earlier.

There are two main types of permanent life insurance:

1. Whole Life Insurance; and
2. Universal Life Insurance

Each of these is explained below.

Whole Life Insurance

Whole life insurance premiums remain fixed throughout the life of the policy. In order to cover the higher costs of insurance as you age, whole life insurance premiums are typically higher in the beginning than term life insurance premiums, but as you get older the opposite occurs.

Because whole life insurance premiums are effectively "smoothed" over the expected life of the insured, the premiums paid at the beginning exceed the insurance company's cost of insurance. As a result, a whole life policy accumulates a cash value from the excess premiums paid. Upon maturity of the policy, the cash value of the policy is equal to the death benefit.

Universal Life Insurance

Similar to whole life insurance, a universal life insurance policy accumulates a cash value to the extent that premiums paid exceed the cost of insurance and other policy charges (if any). The insurance company invests the cash value and interest is credited to the cash account each month. The interest credited to the account is determined by the insurer and may be pegged to a financial index such as a bond index or other interest rate index. Any interest earned is tax deferred.

Universal life insurance is distinct in that it has a flexible premium and adjustable benefit. The death benefit can be increased (subject to insurability) and decreased without the need to surrender the policy and/or obtain a new policy as would be required with whole life. Universal life insurance is flexible and adjustable in the following ways:

• You can choose the amount of premium you would like to pay, and the death benefit is adjusted based on this premium amount; or
• You can choose the amount of the death benefit, and the premium is set based on this benefit amount.

Other Policyholder Benefits

At any time, subject to certain conditions, the owner of a permanent life insurance policy may:

• Surrender the policy prior to maturity for the cash value less applicable surrender charges, if any.
• Make a withdrawal from the cash value. Withdrawals from the cash value decrease the death benefits.
• Borrow against the policy (i.e. use the policy as security), often at relatively low interest rates.

Permanent Life Insurance Quotes

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September 9, 2010