Permanent insurance is intended to stay in
force until the insured's death. It usually offers a fixed
premium, generally accumulates a cash value on a tax-deferred
basis and may also pay dividends. Permanent life insurance costs
more than term insurance in the short run, however, it is
generally more cost effective over the long term.
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Common types include whole life, variable
life, universal life, and survivorship life insurance.
If insured died while the policy was is force, his/her
beneficiary would receive an amount equal to the current value
of the policy.
Whole life provides a guaranteed
death benefit in exchange for guaranteed premiums, which could
be level, or may either increase or decrease over time. Portion
of the premium covers the insurance (pure protection), while the
balance grows tax-deferred. With certain limitations, insured
may also borrow against or withdraw from the balance.
Universal life insurance is more flexible and can change
with your needs changing. Premiums are deposited into an
interest-earning account managed by the insurance company.
Monthly deductions are made from the account to pay for
insurance and administration fees. Insured has the flexibility
of making consistent payments on a regular basis or less
frequent larger payments - whichever works better - as long as
there are a sufficient funds in the account to cover monthly
charges.
Variable universal life insurance also combines death
benefit protection with the opportunity to invest. However,
unlike traditional universal life insurance, variable policy
offers the flexibility to invest net premium dollars in a broad
range of investment options (normally mutual funds, not
individual stocks), so you can customize your policy based on
your individual preferences and financial planning requirements.
Survivorship life insurance protects two lives, instead
of one. Married couples often choose this type of protection for
estate preservation purposes. When insured dies, insured's
estate will pass on to the spouse free of Federal estate taxes
(within certain limits). However, when spouse dies, the heirs
will likely be subject to pay estate taxes. Survivorship
insurance can provide the funds to offset these costs and can
also protect your estate from being liquidated.
