Permanent Insurance Key Points
Unlike Term Life insurance, Permanent Life insurance, as the name implies, remains in effect as long as you make your agreed upon monthly premiums. In addition, all Permanent Life insurance policies have a cash value and investment component. A portion of the monthly premium is deposited into some type of tax-deferred annuity.
The most common types of Permanent Life insurance are Whole Life, Universal Life and Variable Life. The differences between the three are related to the interest rates and how investment funds are allocated.
- Permanent Life remains in effect for your entire life, as long as you make the agreed upon payments.
- Permanent Life insurance accrues cash value, and may eventually pay for itself.
- With Permanent Life, you can borrow against cash value.
- Universal Life and Variable Life offer greater flexibility and potentially higher rates of return on investment, but are also more risky as investments than Whole Life Insurance.
- You should purchase enough Term Life insurance to cover 10x your annual salary for at least 7 years, 10 Years if you have children. Use our benefits calculator tool to determine the death benefit that is right for you and your family.
Whole, Universal, or Variable?
Good question. That really depends on your budget and how much risk you are willing to take as an investor. If you feel you are on the conservative side, Whole Life is a good choice. It does have a cash value, and premiums cannot fluctuate during the time the policy is in effect. However, you also may not change the death benefit amount nor have any say in how your money is invested.
Universal and Variable Life insurance both offer a greater degree of flexilbility. With both types of insurance, you can adjust your premium and your death benefit. With Variable Life, you are also empowered with investment options. However, with both types of insurance, premiums and interest rates, and even your death benefits, are subject to the whims of the markets.