Uses of Permanent Life Insurance

Permanent life insurance implies insurance that you keep for life. As long as you keep paying the premiums, the insurance does not expire. In comparison, term life insurance covers you only for a specified period of time and all death benefits are waived off if you outlive your term. The two most common types of permanent life policies are whole life and universal life insurance. These policies also accumulate cash value along with the death benefits. This cash value can even be borrowed against or en-cashed while you are still alive. Policy holders can use this money to pay for their children’s education, fund their retirement or in case of any emergency. When compared to term life insurance, permanent life insurance coverage costs significantly more in the early stages of the policy but becomes more economical as the years go by. There are two main types of permanent life insurance – whole and universal:

Whole Life Insurance - Whole Life Insurance offers coverage for your entire life. After your death your beneficiaries will receive the cash benefits of the policy that can be used to pay off your taxes, mortgage, estate settlement claims etc. As a rule, whole life insurance premiums do not fluctuate. Unlike term life policies that cost more as you grow older (except for level term), with whole life insurance, the costs are averaged out over the period of the policy.

Whole Life Insurance also accrues a cash value over the life of the policy that is tax-free. If you cancel your policy or borrow against its value, you can use this cash value as well. The rate of growth of the cash value depends on a number of factors such as the investment success rate of the your insurance company.

The advantages of whole life insurance would therefore include a fixed premium that doesn’t increase over the period of the policy, the payment of death benefits to your beneficiary, a cash value component that you can borrow or surrender during your lifetime and finally the option to receive dividends from your policy. On the other hand, whole life insurance doesn't offer the flexibility to invest in separate investment accounts or split your money between accounts. Neither does it offer premium or face amount flexibility.

Universal Life Insurance – A life insurance policy has three key elements to it – the premium, the coverage, and where the insurance company invests the cash value component of your policy. Universal life Insurance offers you control over all these elements. As time passes, your needs for financial security and insurance protection will naturally change. Universal life insurance gives you the flexibility to alter the different components of your policy to suit your needs at the time. For example, if you are experiencing a cash crunch, you can reduce your premium amount. Alternatively, if you are enjoying a secure period with your funds, you can increase your premiums and thus increase the investment value of your policy as well. Variable universal life insurance allows you to also control how your money – in what stocks, mutual funds, and bonds. However, unless you are well versed and confident about the markets, this sort of policy is not recommended.

Universal life insurance therefore allows you both premium and face amount flexibility, it allows you to borrow or en-cash from your policy within your lifetime, it pays your beneficiaries the death benefits allows you to earn market rates of interest on your cash value account. It however, doesn’t let you split your money between accounts or invest in separate investment accounts.

Permanent life insurance is definitely a valuable addition in terms of its death benefits but one of the main uses of a permanent life policy is its living benefit. A permanent life insurance policy will help you while you are still alive by helping you pay for your children’s education, your first home, a medical emergency or even a wedding. When purchasing a permanent life policy, one tends to only think of the advantages offered after death but if we start thinking of the uses of such a policy within our lifetime, it might just change the way we look at life insurance today.