Permanent life insurance

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Permanent life insurance is a form of life insurance such as whole life or endowment, where the policy is for the life of the insured, the payout is assured at the end of the policy (assuming the policy is kept current) and the policy accrues cash value.

This is compared with Term life insurance where insurance is purchased for a specified period (typically a year, or for level periods such as 5, 10, 15, 20 even 25 and 30 years) where a death benefit is only paid to the beneficiary if the insured dies during the specified period.

Contents 1 Types of perm life insurance 1.1 Universal life insurance 1.2 Variable life insurance 1.3 Variable universal life insurance 1.3.1 Whole life insurance 2 Payout likelihood

Types of perm life insurance

Permanent life insurance originally was offered as a fixed premium fixed return product known as whole life insurance also known as cash surrender life insurance. This offered consumers guaranteed cash value accumulation and a consistent premium.

Universal life insurance

Consumers later wanted more flexibility which was offered in the form of universal life insurance. Universal life insurance allows consumers flexibility in when premiums are to be paid and the amount that they would be. Universal life policies also allowed consumers to permanently withdraw cash from the policy without the interest associated with the loan provisions in whole life policies. Universal life policies retained the fixed investment performance of whole life policies.

Variable life insurance

Variable life insurance follows the mold of whole or universal life, but it shifts the investment risk to the consumer along with the potential for greater returns.

Variable universal life insurance

Variable universal life insurance combines this with the flexibility in premium structure of universal life to create the most free form option for consumers to manage their own money (at their own risk). Variable universal life insurance policies are considered due to the favorable tax treatment of all permanent life insurance policies and their potential for greater returns than other insurance products.

Whole life insurance

Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. The primary disadvantages of whole life are premium inflexibility, and the internal rate of return in the policy may not be competitive with other savings alternatives. Riders are available that can allow one to increase the death benefit by paying additional premium. The death benefit can also be increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time. Premiums are much higher than term insurance in the short-term, but cumulative premiums are roughly equal if policies are kept in force until average life expectancy.

Cash value can be accessed at any time through policy "loans". Since these loans decrease the death benefit if not paid back, payback is optional. Cash values are not paid to the beneficiary upon the death of the insured; the beneficiary receives the death benefit only. In many policies, however, the cash value has been automatically used to purchase additional death benefit, meaning that the beneficiary is likely to receive more than base death benefit plus cash value.

Payout likelihood

Because Permanent insurance programs must always pay out, the cost of insurance is considerably higher than term insurance. Term insurance is referred to as pure death benefit with no cash accumulation vehicle tied to it. Because of this term programs remain 8 to 10 times less expensive than a permanent program for the same coverage. Most people are drawn to term insurance for the low cost and ability to invest the difference in separate financial products.