Permanent Life Insurance
What is Permanent Life Insurance and is it right for me?
Unlike Term Life Insurance, Permanent Life Insurance Policies provide financial protection for the rest of your life.
Your family depends on your ability to provide for them. If something were to happen to you, would they be able to provide for themselves? Permanent life insurance gives you and your family the peace of mind that should you pass away they will be financially secure.
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What’s the difference between permanent life insurnace and Term Life insurance
Term life insurance protects you for a specific period of time. For instance, a 15-year term life policy will pay a death benefit to your beneficiaries should you pass away during the 15-year term.
Permanent Life policies such as Indexed Universal Life, Whole Life, and Variable Life protect you until you die, with no term limit. These policies follow you throughout the course of your entire life.
Permanent Life policies cost more than Term Life, but they also have many advantages
While Term Life policies offer low monthly premiums and robust death benefits, they come with a few disadvantages when compared to permanent life policies. For example, your monthly premiums in a term life policy are essentially payments to keep the policy active. They are not invested, they do not accumulate interest, and most importantly, they are not recoverable should you live beyond the policy term. This means that if you outlive that 15-year term life policy, you will not receive any money back. The policy simply ends.
Permanent Life policies don’t expire and your premium dollars can accumulate interest over time
The advantage of a permanent life policy is that as you pay your premiums, a portion of your premium dollars go toward growing the cash value of your policy. Depending on the structure of the policy, you may have the option to borrow against this cash value while you are still alive. There are several types of permanent life policies and each of them have different options for how your premium dollars grow inside the policy.
What are the different types of Permanent Life Policies?
There are many types of permanent life insurance such as: Whole Life, Indexed Universal Life and Variable Universal Life.
Whole life policies guarantee growth on a portion of your premium dollars at a fixed rate. While your money invested in the market may fare significantly better, the benefit of a solid death benefit for your heirs and loved ones coupled with a conservative but steady growth on the overall cash value of your policy is attractive to consumers who want a stable growth policy.
Indexed Universal Life
Indexed Universal Life policies offer a substantial death benefit, similar to Whole Life policies, but where they differ is in how the cash value of your policy grows. Where as Whole Life offers a fixed growth rate, Indexed Universal Life policies tie the growth rate to mirror a market index of your choosing such as the S&P 500 or the DOW Jones Industrial Average. When these indices grow, you will benefit from that growth up to a certain point. The growth caps out at a percentage. For example, your policy may cap out at 8% gains. This means that the portion of your premium dollars that mirror the index cannot grow past 8% even if the market goes up 10%. The most intriguing aspect of Indexed Universal Life is that there is often a “Zero” floor. This means that if the indexed market goes down 5%, your premiums will not fall further than 0%. So while you will not accrue cash value in that instance, you will not lose cash value either. This is known as “Zero is my hero.”
Variable Universal Life
Variable Universal Life differs from Indexed Universal Life in how the portions of premium are invested and in the return/loss factors. In VULs, subaccounts are created to invest cash into the market. While this can substantially increase the value of the policy, there is no “zero” floor meaning that if the markets take a dive, you may have to increase your monthly premium spend to cover the difference. However, the reverse is also true. In a VUL, when the markets are thriving, you will see a substantially greater return than with the Indexed policies.
The Bottom Line
Life Coverage Quote is here for you
LCQ wants to help you protect your greatest asset. We are happy to answer any questions you might have about how the right disability insurance policy can help provide peace of mind for you and your family. For additional information, don’t hesitate to contact us.