Permanent Life Insurance
Permanent Life insurance does not have a time limit, as does Term. In addition to remaining in effect as long as you pay your monthly premiums and keep any other obligations per your contract with the insurance company, these type of policies also accrue "cash value". The most common type of Permanent Life is Whole. Other types of Permanent Life insurance are Universal Life and Variable.
Universal and Variable Life give you a greater degree of flexibility. With both types of insurance, you can adjust your premium and your death benefit. With Variable Life, you are also empowered with investment options. With both of these types of insurance, premiums, interest rates and even your death benefits can be subject to the whims of the markets. Variable lets you elect to invest in stocks and publicly traded bonds. As such, it is considered a securities product and the only type sold by prospectus and regulated by the Securities and Exchange Commission.
What exactly is this product?
Basically there are two types; Term Life, which you buy for a fixed period of time, and Permanent Life insurance, which remains in effect until you die. In addition to not having a limited term, all types of Permanent insurance build cash value with some form of tax-deferred investment or savings plan. Because of this investment component, the premiums are significantly higher than Term premiums.
The most common type is Whole Life. There are two main variations available; Universal and Variable Life. The differences between all three are related to the interest rates and how investment funds are allocated.
All Permanent plans build cash value. Over the life of the policy, you can borrow money against the accrued value. If the loan has not been paid back at the time of death, the amount of the loan will be deducted from the death benefit amount. On some policies the cash value increases to the point where monthly premiums become unnecessary, and the policy effectively "pays for itself".
As with any investment product, these type of policies have some degree of risk, and a return on investment is not guaranteed. You should ask insurance agent for an illustration of how the policy would work over time as interest rates and other factors change. Permanent Life insurance quotes vary among carriers. Comparing quotes before buying is recommended.
Permanent Life insurance is designed to remain in effect for your "whole life" - hence the name. Therefore, it is considered best for individuals who believe they will have reason to rely on death benefits for their family no matter what age they are when they pass away. For example, parents who have disabled children, who will likely never be able to support themselves, should consider it. Also for people who expect to leave behind a considerable estate for their heirs, this type of policy can be used to pay off estate taxes.