Permanent Life Insurance

Permanent life insurance, as opposed to term life insurance, lasts for the entire life of the person who is insured. The other biggest difference between term life and permanent life insurance is that the latter builds up a cash value as monthly premium payments are made. In essence, a permanent life insurance policy is a combination of a life insurance policy and a savings plan.

Permanent life policies offer both a payoff upon the death of the insured and a cash value that increases the longer the policy is held. Once the cash value reaches a certain level, a policy holder can borrow against the cash value that has accrued.

The three major types of permanent life insurance include whole life, universal life, and variable life. Whole life is the most traditional type of permanent life insurance; it also offers more guarantees than other types of life insurance. The annual premium amount, the minimum cash value, and the death benefit are all guaranteed. A "participating" whole life policy, which is the norm, means that the dividends earned through the policy can be used in a number of ways: to increase the cash value, to increase the death benefit amount, to decrease the annual premium, or to be refunded in cash. Traditional whole life insurance is a good choice for conservative investors who have difficulty saving money on a regular basis.

Universal life insurance was created in the 1970s in response to the demand for more flexibility in premiums. Universal life policies allow the amount of the annual premium to vary; sometimes the premium can even be skipped for a year. While whole life policies offer dividends to their policy holders, universal life insurance delivers interest instead. For permanent life insurance that offers premium flexibility, universal life is a good choice.

Variable life is a type of permanent life insurance that offers the greatest potential for increases in cash value, but it also comes with the fewest guarantees. As with universal life policies, variable life policies offer flexibility in premiums. In addition, variable life allows the policy holder to choose from a number of investment options which can include stocks, mutual funds, and publicly-traded bonds. Variable life insurance is a good choice for people who are knowledgeable regarding investing and can accept some degree of risk.

Permanent life insurance can be a wise move, but it should not be used solely as an investment. The death benefit offered by insurance is the primary factor on which purchasers should focus; the savings or investment portion of permanent life insurance is a secondary consideration.