Term life insurance expires, and that's no secret. Fortunately, there is an alternative for those who want an insurance policy that will last longer: permanent insurance. And not only does permanent insurance never expire, it also offers a savings portion as a benefit.
There are two types of permanent life insurance: whole and universal life insurance. In both cases, it's the savings feature that typically draws people in. It builds cash value over time, and the policyholder can borrow funds or even withdraw it for personal use, including paying bills or tuition.
Whole Life Insurance
As its name implies, whole life insurance covers you for your entire life, no matter how long it may be. Because the coverage doesn't inspire and includes a savings feature, you pay a premium higher than you would for term life insurance.
The savings feature involves the insurance company putting away a portion of the premium payment into an account with high interest, allowing the cash value to increase, tax-deferred, over time. The guaranteed cash value and flexibility make whole life insurance policies worthwhile. Not only can you borrow money against the cash value, you can also surrender the policy to get the cash value.
Some insurance companies also offer policies that pay dividends. You can receive it in cash, or you can decide to let it accumulate interest over time. You can also use the dividends to reduce the policy's premium or buy more coverage.
The setup of whole life insurance can help you fulfill personal goals that require relatively large sums of money. It's also worth purchasing at a young age so you can fully reap its benefits (learn about The Perfect Age to Get Life Insurance).
Universal Life Insurance
Universal life insurance (also known as adjustable life insurance) offers even more flexibility than whole life insurance. You can increase or reduce your death benefits, and you can pay the premiums at any point, with any amount. This is subject to certain limits, however, and only applies after you make the first premium payment.
You can also increase the overall face value of your insurance coverage, though you must pass a medical examination to qualify. You may also need to decrease coverage to the smallest amount, but doing so may result in surrender charges on the cash value.
You have two options when it comes to death benefits: an increase equal to the overall face value of your policy or a fixed amount. Both apply to the cash value amount for your policy.
The insurance company will disclose the overall cost for your insurance right off the bat so you have a general idea of how your future policy is going to work for you.
Permanent life insurance offers a peace of mind by promising lifelong security, no matter what happens. Whole life insurance can protect your beneficiaries and plays the role of a tool that accumulates assets over time, while universal life insurance gives you the opportunity to regulate your insurance coverage. Before choosing between these policies, talk it over with your family and take their needs into account.