Permanent life insurance, or “cash value” insurance, is an insurance policy that has benefits not covered by a traditional term insurance policy. Permanent life insurance has many characteristics. One that is most notable is that the benefits of the policy are equal to the original face value of the policy when it was put in force. Another notable about a whole life policy is that it provides continuous coverage from the date of issue until the death of the insured. In other words, the policy covers the insured’s whole life.
What Is Cash Value?
A policy that has cash value is a major benefit for the insured. A cash value policy allows policyholders to borrow at a reasonable rate through the construction of the cash value of whole life insurance. These funds can be used for purposes such as paying a mortgage, educational needs for college and financial emergencies. In essence, this loan does not have to be repaid while the the policy is in force but does, however, affect the growth of cash value and must be offset with interest from the death benefit. Cash value can also be used as collateral or as a means of security because it is considered as property belonging to the insured.
Do Premiums Increase?
Premiums in whole life policies do not increase or decrease. The premiums are fixed and remain in effect for the life of the policy. The cost of the premiums depend on a few different factors that calculate the cost. These factors include a person’s age, current health conditions, the amount of insurance purchased and the type of policy desired. After all these factors are considered, the premium amount is determined and can be expected to remain the same up to age 100. What happens should the insured reach beyond the age 100? The company that insures the individual will issue a check that is the full value of the policy.
Permanent Life Types
There are different types of life policies that are available to individuals seeking life coverage. Examining the different types and choosing the benefits that best fit each individual need is highly recommended. Below are different types of permanent life coverages:
Whole Life – has a standard face value amount and builds cash value. Once the cash value has accumulated, it can be withdrawn by the policyholder.
Universal Life – this type policy has a larger rate of return as far as interest is concerned for the cash value amount of the policy. The cash value of the policy can be guaranteed a minimum of 4 percent interest. There are maintenance fees with this type policy that range from 5 to 7 percent.
Variable Life – Variable life insurance policies are different from universal life policies in that part of the savings are available for investment options. These investments can be managed professionally, and the insured may choose to invest in stocks, bonds, mutual funds or a combination of options. This provides better performance and accumulates the cash value faster. These investments, even if managed by professionals, are also subject to risks. Risks mean that you can lose part or all of your savings.
Variable Universal Life – This type policy is a combination of variable and universal life which still involves the risk factor. A policy of this type also has the benefit of changing the premiums should there be enough cash value in the investment side of the policy.
While there are many different options for life insurance, it is important that an individual’s family is covered in the event of death whether by accident or natural causes. There are more than 68 million Americans that have no life insurance coverage at all. Shouldn’t you take the necessary measures to ensure your family is financially secure after you are gone?