What is Permanent Life Insurance?
Permanent life insurance or whole life insurance provides coverage for the entire duration of a policyholder’s existence. It is not limited to a several number of years. Instead, this form of insurance policy is for people who would like to remain protected way into their advanced years. This type of policy allows for interest growth on the cash value of your financial investment. The insurance company gives you a share by returning a portion of the amount in the premiums. It is common practice for insurance carriers to invest your money in other business and when it accumulates with time, it increases in value. The nature of the cash-value is that it is tax-deferred. However, if you decide you take a loan or borrow from it, then this will no longer apply.
Categories for permanent life are: single-premium, traditional and interest-sensitive insurance policies. Single-premium means that only one payment for the premium will be made by the policy owner. When someone has a large amount of cash on hand, an upfront purchase of the plan is made possible. Similar to all other permanent life plans, the single-premium policies increase value over time and also have the same tax exemptions on interest returns.
The traditional permanent or whole life insurance ensures the policy owner of minimum returns on the cash value. As opposed to an interest-sensitive policy, the insured has more variety when it comes to the interest growth rate. It follows the same principle as an adjustable mortgage rate. It offers the more flexibility through increasing the value of payout upon death but with the premium rate remaining constant.
As opposed to term life insurance, permanent life policies ensure that a percentage of premium payments actually go to the plan owner’s cash value. This means that the policy will have paid for itself in several year’s time. Your premium rate will also remain the same unless you opt to change it so. In addition, if a policy owner doesn’t change the whole policy per se, then no other medical examinations will be required in the future. Tax savings are another advantage when it comes to permanent life insurance plans.
Some people consider purchasing these policies for the sake of using them as investments. They are attracted to the tax savings and coverage while getting a return on investment by means of interest growth. However, when evaluated in comparison to other financial investments, the growth rate of permanent life policies is low even if the tax savings are included. Most investment professionals advise that insurance policies should not be purchased for the sole purpose of using them as investment tools. Insurance policies are there for the primary reason of protection. The interest growing nature is just another advantage and the cash value can be viewed as an emergency cash pool. If an individual truly needs life insurance coverage, then the cash value and benefit from tax exemptions would be helpful features in helping one decide in making a purchase or not.