Permanent Insurance, also called Whole Life Insurance, is designed to last for the duration of an insured’s remaining lifetime, or as long as premiums are received on the policy (also called investment policies) where the main objective is to facilitate growth of capital by regular or single premium payments.
While permanent life insurance comes in many flavors, the underlying minimum guarantees built into these policies are the very similar.
Permanent life insurance policies can have additional premium collected which grows cash values within policy.
Fixed monthly premiums or increasing premiums to cover cost of living increases.
Cash values grow tax free.
Administrative costs associated with the policy are assumed by the Insurer and are not always transparent.
Generally, life insurance proceeds pass to your beneficiaries’ income tax free.
Policies can be paid with a single premium, up to age 95 or 121, or for a set number of years.
Certain whole life policies are eligible to earn policy dividends, but are not guaranteed.
Upon death of the insured, death benefit plus any remaining dividends will be paid to beneficiaries.
Policy loans can be taken in the event of an emergency. Although they don’t have to be repaid; withdrawals, loans, plus accrued interest would be deducted from the death benefit before proceeds are distributed to your beneficiaries.
Universal Life Insurance
Universal Life Insurance (also called ULs) is another type of permanent insurance. It is similar to, in some ways and evolved from whole life insurance. However, the actual cost of insurance within the policy is based on annually renewable term life insurance, which offers for two major benefits for consumers:
- ULs offer the advantage of guaranteed level premiums throughout the insured’s lifetime at substantially lower premium costs, than a comparable whole life policy
- Unlike other types of permanent and term insurance, ULs offer flexible premium payments and adjustable death benefits
The death benefit can be increased (subject to insurability) or decreased, at the policy owner’s request. This is helpful when the unexpected happens and the needs of your family change.
The policy premiums are flexible, from a minimum amount specified in the policy or to the maximum allowed by the contract. If no premium payment is received, the accumulated cash values can be used within the policy to cover the cost of insurance each month.
Riders are available which provide a No Lapse Guarantee, which is designed to keep the policy in force when premium payments cease or are temporarily unavailable.
Premiums are paid into policy’s account value, where a portion of it earns interest each month.
Indexed Universal Life
Indexed Universal Life (also called IULs) is another type of universal life policy, which is similar to Fixed Indexed Annuities (or equity indexed annuities).
Indexed Universal life policies enjoy the same, wide range of benefits and advantages as offered by a traditional UL, such as flexible premiums, flexible payments and death benefits. These policies can be modified as needed to address the changing needs of your situation.
These policies credit interest linked to the positive movement of the stock market such as the S&P 500, Russell 2000, and the Dow Jones.
IULs, like a traditional UL, typically cost considerably less than a comparable whole life policy.
The cash value inside an IUL generally has principal protection, less the cost of insurance and administrative fees.
They are designed with the ability to outperform other types of permanent life insurance by offering the potential for higher interest rates, when cash values are linked to an external market which experiences growth.
Index UL participation in the index may have a cap, margin, or other participation modifier, as well a minimum guaranteed rate.
Many insurance companies are offering caps as high as 13% as well as uncapped strategies with unlimited growth potential. This is one reason that traditional whole life policies offering 2-4% growth at best, are being replaced with IUL’s by many companies.
- Death benefit in which life insurance proceeds are generally passed to beneficiary income tax free
- Cash values grow tax free (per current laws pertaining to federal income taxes)
- Cash values can be accessed to take care of educational expenses, handle unforeseen emergencies, provide retirement income or for any other reason
- Beneficiary receives death benefit plus cash values, accumulated in the policy
Final Expense Insurance
Final Expense Insurance is a type of whole life or permanent insurance, designed to protect an insured for the remainder or their life.
Final Expense insurance was devised specifically for the niche market of seniors, in an aging population.
Offer low to moderate face value helping senior citizens to purchase affordable insurance, later in life.
Usually available for ages 50-80, but some policies are available for people over the age of 80.
Typically have death benefits between $2,000-$40,000.
Popular because they generally require only answers to simple “yes” and “no” questions, while most policies require a medical exam (and extensive medical questions) to qualify.
Health questions can vary greatly between exam and no-exam policies.
It may be possible for individuals with certain conditions to qualify for one type of coverage, but not another.
Can be used to cover final expenses, such as burial costs, funeral arrangements and unpaid medical bills.
Beneficiaries can choose how to spend policy proceeds and are not required to use funds for final expenses.
Gives your family time to grieve, instead of worrying about how to pay for your funeral, medical bills and associated burial expenses.