What are the characteristics of permanent life insurance?

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Permanent life insurance is a type of life insurance that provides coverage for the entirety of the insured’s life, as long as premiums are paid. It has several distinctive characteristics:

  1. Lifetime Coverage: Unlike term life insurance, which provides coverage for a specified period (e.g., 10, 20, or 30 years), permanent life insurance offers coverage for the insured’s entire life, as long as premiums are paid.
  2. Cash Value Accumulation: Permanent life insurance policies typically have a cash value component that grows over time. A portion of each premium payment is allocated to the cash value, which earns interest or investment returns on a tax-deferred basis.
  3. Guaranteed Death Benefit: Permanent life insurance policies provide a guaranteed death benefit to the beneficiaries upon the insured’s death, regardless of when death occurs, as long as premiums are paid.
  4. Premiums Stay Level: In most cases, the premiums for permanent life insurance policies remain level throughout the life of the policy, meaning they do not increase as the insured ages.
  5. Flexibility: Permanent life insurance policies often offer flexibility in terms of premium payments and death benefit options. Policyholders may have the option to adjust premium payments, change the death benefit amount, or access the cash value through policy loans or withdrawals.
  6. Tax Advantages: The cash value accumulation within a permanent life insurance policy grows on a tax-deferred basis, meaning policyholders do not have to pay taxes on the growth until they withdraw funds. Additionally, death benefits are generally received income tax-free by beneficiaries.
  7. Dividend Potential: Some permanent life insurance policies, such as participating whole life insurance, may pay dividends to policyholders. These dividends can be used to increase the cash value, reduce premiums, or be taken as cash.
  8. Complexity: Permanent life insurance policies can be more complex than term life insurance due to their cash value component, various policy options, and potential investment features. It’s essential for policyholders to fully understand the terms and features of their policy.
  9. Cost: Permanent life insurance policies typically have higher premiums than term life insurance due to the lifetime coverage and cash value accumulation features. However, these higher premiums may provide long-term value and financial security for the insured and their beneficiaries.

Overall, permanent life insurance offers a combination of