Permanent Life Insurance: A Brief Overview
Permanent life insurance is complicated for most people, but it doesn’t have to be. Below, we are going to look at permanent life insurance with a brief overview. We’ll break down its components of each concept.
Hopefully, when you’re finished reading, you will understand the basics and be empowered to decide if permanent life insurance if for you or not.
What is Permanent Life Insurance?
The key word is permanent – this type of life insurance covers you for your lifetime, so the premiums are usually guaranteed not to increase and your death benefit (the amount of your policy) will either stay exactly the same or grow each year.
This differs from term life insurance, because with that type of insurance, your premiums increase over time and you are only insured for a set number of years. Thus, term insurance is temporary.
Under the umbrella of permanent insurance, there are three different types of insurance products.
3 Different Types of Permanent Life Insurance
Permanent life insurance is broken down into three types to serve different needs:
- Universal Life Insurance: This type provides coverage for your life, but it also has an investment component. This component creates tax-deferred savings for you. To increase your investment you make deposits on a regular basis, but there is some flexibility with how much you pay.
- Whole Life Insurance: This type of coverage is very similar to universal life, but you have a fixed premium. You can use the savings component as collateral for a loan, or you can use the money for anything you want if you cash out the policy. The premium is not quite as flexible but most policies are structured to be completely ‘paid up’ after 15 or 20 years.
- Term-to-100: Generally, with this type of permanent insurance, your policy premiums stop when you reach 100 years old (this may vary with different insurance companies), but your policy coverage will continue. The main difference between this type and the other two is there is no cash value or savings component.
As you can see, permanent life insurance has many benefits, but it’s important to note that it is more expensive than term life insurance because the insurance company knows they will eventually write a cheque to your beneficiary.
If you would like to speak with a professional life insurance broker about your risk management or estate plan, please send us an email or call us directly at 1.888.498.5288.