Life Insurance Needs Calculator
Permanent Life Insurance
What is permanent life insurance?
Term life insurance is purchased for a specific period of time and its benefits are only paid if the insured dies while the policy is in effect. Permanent life insurance is not based on any specific amount of time, because as long as the policy is kept current (premiums are paid) the payout is guaranteed at the end of the policy.
Financial advisers may disagree about the advantages of different types of life insurance, but consultants agree that everyone needs some form of life insurance at some point in their life. Whether you choose a term or permanent life policy should be based on your personal situation. Let’s review the best canidates for permanent life insurance.
Who needs permanent life insurance?
Here are some examples of people that would benefit from a permanent life insurance policy.
Large Estate Taxes – Those passing along a large estate may create a significant tax bill. Without an insurance benefit or the cash savings to pay the tax bill, heirs may have to sell the estate or part of it to cover the tax bill.
Retirement Investing – High-income individuals may not be able to use certain tax-advantaged retirement plans to save for retirement. Buying a whole life insurance policy that contains an investment account may provide wealthy individuals with a tax-advantaged way to save money for retirement.
Medical Concerns – Significant medical problems can lead to significant medical debt. The insurance benefit can cover these debts, keeping the estate from having to pay the debts.
Benefit over term life insurance
Permanent life insurance programs are designed to be permanent and pay a death benefit, therefore the cost of permanent insurance is considerably higher than term insurance. Term insurance is referred to as pure death benefit with no cash accumulation vehicle tied to it. Because of this, permanent premiums remain 8 to 10 times more expensive than term premiums for the same coverage.
Most people are drawn to term insurance for the low cost and the ability to invest the difference in separate financial products. Doing so has a potential drawback in some cases because all term policies eventually expire and the client would then have to pay a higher premium based on his attained age or he may not be able to qualify for a new policy at that point. In these situations, money earned from investments may not measure up to the coverage the policy would have provided. source
Life Insurance Comparison Chart
| Term Life Insurance | Whole Life Insurance | Universal Life Insurance | |
|---|---|---|---|
| Death Benefit | Yes | Yes | Yes |
| Access to Money | No | Yes | Yes |
| Guaranteed Cash Value | No | Yes | Yes |
| Tax Advantages | Yes | Yes | Yes |
| Flexible Payments | No | No | Yes |
| Benefits | - Least expensive - Simple - Customizable | - Never expires - Guaranteed payout - Cash value | - Less expensive - Never expires - Flexibility |
| Term Life Insurance | Whole Life Insurance | Universal Life Insurance |
Types of permanent life insurance
All types of permanent life insurance offer insurance protection for your whole life. The differences lie in the way premiums are paid, how cash value accumulates, and how the death benefit is calculated.
- Whole life insurance guarantees the death benefit for life, guarantees the cash value and guarantees the premium.
- Universal life insurance is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value.
Advantages
The advantages of permanent life insurance include:
- Permanent life insurance never expires
- Payout is assured at the end of the policy
- Premiums never change
- Policy builds a cash value over time
Disadvantages:
The disadvantages of permanent life insurance include:
- Cost is considerably higher than term insurance
- Other disadvantages depend on the type of permanent life insurance
Resources: eHow
