Permanent Life Insurance Comes In A Number Of Varieties
There are several types of life insurance policy which fall under the general umbrella term, permanent life insurance. In all of these policies you have a combination of life insurance and cash value for a single premium that is set when you take out the policy. While the initial premium may seem high, it should not increase as you age.
The three most common types of permanent life insurance are universal life insurance, variable life insurance and whole life insurance.
There are a number of factors to help you understand the differences between these policies. These are the premium, the face amount (or coverage), the benefit and the cash value. Make sure you understand the details related to all of these for the particular policy you are considering.
Permanent life insurance policies will differ in the amount of flexibility and control you have as a policyholder. Whole life has the least flexibility and universal life insurance has the most. For example, with universal life insurance you can choose your premium and face amount when you take out the policy but you are allowed to change it while the policy is in effect (so long as the changes fit within the company's specified guidelines). Choose the flexibility and control level that matches your knowledge and you will feel more comfortable with your choice. With variable life, both the face amount and cash value depend upon the investment performance making it a higher risk type of insurance. In fact this type of life insurance can only be sold by agents who have the same credentials as those who sell securities. Variable universal life insurance falls into the same category. Permanent life insurance policies also have what is described as living benefits. One of the potential advantages of permanent life insurance is the ability to take out a loan against the cash value that you have built up. You have to meet the same criteria as you would for commercial loan and you do have to repay the loan with interest. If you don't repay the loan, you put your life insurance in jeopardy. Any loan outstanding on your death will be deducted from the death benefit and therefore your beneficiaries may not receive the full value of policy. Another appealing feature of permanent life insurance is the tax treatment of the cash value. Particularly with those policies that have investments in stocks and bonds, there is the potential for significant growth. It's important to remember there's also the potential for significant loss! Because there are so many variations in the types of permanent life insurance that are available it is extremely important that you ask lots of questions to make sure that you understand exactly what you are purchasing. Pay particular attention to any guaranteed amounts and any circumstances that would prevent a payout on your policy, such as outstanding loans against the cash value or poor investment performance. Ask about tax regulations so that you understand how to limit your tax liability and maximize any tax advantages. Permanent life insurance can be an important part of your investment, estate, and business planning situation. Before making final decisions, it would be wise to consult appropriate professionals to design a strategy that best meet your needs.
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