Permanent Life Insurance

Permanent life insurance provides coverage for the entire life of the insured as long as premiums are paid. The policy pays a death benefit even if you die at the age of hundred. The death benefit is the face value of the premium.

In addition to pure life insurance, the permanent policy offers a savings element, known as cash value. Because of the savings element, you pay higher premiums than you would with an equivalent term life policy. The permanent insurance premium, however, doesn’t change as you age or your health deteriorates, while renewing a term policy can result in substantial premium increases.

The cash value element of the permanent life insurance policy works like a savings account. By paying higher premiums than what you would with a pure insurance policy, you invest in this account and the insurance company manages your investment so that it builds up in value.

You can use the cash value of the insurance in several ways depending on the terms of your insurance contract:

• You can use the cash value to pay premiums if you have temporary financial difficulties, so that you don’t have your insurance terminated.
• You can withdraw some of the money and thus decrease your death benefit.
• You can use the cash value as a collateral for a low-interest loan from your insurance company. If you don’t repay the loan, however, your death benefit will be reduced by the unpaid amount.
• You can surrender, i.e. terminate, the policy before you die to collect the accumulated earnings: both the cash value and the death benefit.

The cash value of your policy grows on a tax-deferred basis: you pay no taxes on any earnings in the policy as long as the policy remains in force. Loans you receive from your insurance company are not generally considered taxable income, and withdrawals up to the amount of premiums paid are exempt from taxes.

At the point you redeem your policy, depending on the type of policy you have, you can either surrender the cash value to the insurance company or include it in the death benefit.

The most common permanent life insurance types are:

• Whole Life Insurance
• Universal Life Insurance
• Variable Life Insurance

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