How Permanent Life Insurance Works
As the name suggests, permanent life insurance is just that, permanent. Unlike term life policies, this type of policy means that at some point in the future, the benefits will be awarded to you or your loved ones.
Although you might be able to cash in your policy at some point, these plans typically mature upon death and the plan will not expire as long as the payments are made on time. You and your family will be protected as long as you need to be, and in the event of something unexpected happening.
One of the advantages of this type of insurance is that it is a type of investment too. The amount that is accrued over time becomes an asset, as well as an insurance policy designed to protect you.
How Does it Work?
Your death benefit and the savings part of the plan are both covered by your monthly premiums, and while the provider invests the savings, the insurance company gets the portion that is assigned to the death benefit. The savings component can then be used to provide the policy holder with a profit or to cover the cost of payments in the future, depending on how much is in it.
Permanent life insurance is more expensive than term life insurance, because both the savings and the insurance components are covered by the cost of the premiums. However, many people consider these policies to be especially good value, as in a way you are putting money into a savings or investment account, which then becomes an asset.
A lump sum is paid out upon death, and this is the same as with a term life policy. The mortality fees and the rules of the specific plan will determine the amount of the benefit.
The cash value of the policy is any dividends which have accrued through investing, added to the amount that was paid in premiums and the cash value goes to the beneficiary once the plan has matured.
Always do your homework and compare the different policies and providers, as there are a lot of different variables and things to consider.
Why Choose Permanent Life Insurance?
The cash value is one of the biggest advantages, and you can withdraw from it and access the money in an emergency, like any other account.
This ability to be able to access the funds and at the same time have the coverage you need, makes the plan appealing to many and strikes a good financial balance. On the other hand, you cannot withdraw from a term life policy as it has no real cash value.
The cash value may also pay a dividend, depending on the plan and the provider and of course the dividend can then be used for whatever you need it for. However, you can also buy another policy or pay off part of the premium.
It can often be cheaper to take out this permanent type of plan than the term option of insurance, and this is especially true for anyone who is getting on in years. Permanent coverage can be a much better buy, because as you get older the premiums for term life insurance increase significantly.