Types of Permanent Life Insurance

Permanent Life insurance is insurance that includes a cash value element in addition to the death benefits and offers coverage to the policyholder for his or her entire lifetime. There are several types of permanent life insurance policies available today and to make an informed choice about which would best suit you, it is important to understand what is and is not included and how each type functions. The main types of permanent life insurance are:

Whole Life – Also referred to as Ordinary Life Insurance, this type of insurance remains in effect for the entire lifetime of the policyholder or as long as the premiums continue being paid. Whole life insurance also consists of a cash value component that accumulates value as time goes by. This is a popular insurance chosen as a type of retirement investment plan. Some companies may pay dividends or a return of excess premiums on such policies. Whole life insurance is more expensive than term life but also has the benefits of its investment component and flexibility working in its favor.

Universal Life – Universal Life Insurance like Whole Life also provides a cash value element that generates a guaranteed rate of interest over the years. With Universal Life, this cash component is yours to adjust and you have the flexibility to borrow or withdraw against it as well. However, if you take out a loan against your cash component and fail to repay the amount, you could end up losing your entire policy amount. You can also play around with the death benefit component and premium payments. For example, if you find yourself in a tight financial situation for a while and have enough money in your cash component to cover costs, you could reduce your premium payments till the tough times subside. But do not surpass the savings amount totally as this will cause your policy to lapse and end your coverage.

Variable Life Insurance – A permanent insurance policy that once again consists of the death benefit component and an investment component. The cash value part of the policy may be professionally managed and fluctuates according the markets. Basically, you use the cash value component to invest in bonds, mutual funds and stocks. The returns on such a policy can be very high but they also carry with it an inherent risk of great loss as well. If the markets fall badly, you might end up with low death benefits and a negligible cash component. That said, there are some companies that guarantee the stability of your death benefits. Much like Whole and Universal life insurance, Variable Life also allows you to borrow or loan against the cash value at any time (but within limits).

Variable Universal Life Insurance – A combination of the flexibility of the premium and death benefit amounts of a Universal Life policy and the investment options and risk of Variable Life Insurance. Like Variable policies, you will have several investment options and like Universal Life insurance you will be able to adjust premium payments in times of need.

Indexed Universal Life Insurance- In this policy, the cash value component is linked to the performance of a financial index. However, most policies will guarantee that the credit rating of the cash value will not fall below zero even if the index is negative.

Last Survivor Universal Life Insurance – Also known as Survivorship insurance, this type of policy covers two people. It will only pay out the death benefits when both policyholders die. Such types of policies are largely used as vehicles to pay off estate taxes.

Single-Premium Whole Life Insurance – This is when you can purchase the entire whole life insurance policy with one single premium payment.