Is Permanent Life insurance for you? This type of coverage, unlike Term Life, does not expire and provides a tax-deferred investment or savings component ("cash benefit"), as well as a death benefit. As a rule, Permanent Life makes sense as a savings vehicle for high-income families, or those - such as small business owners - with illiquid estates, who want to pass along cash to their heirs.
If you're considering Permanent Life, here's what you should know:
- Types of policies.
- Whole Life charges a fixed premium to fund a guaranteed cash benefit and death benefit; the shorter the pay period, the higher the premium.
- Universal Life offers a flexible premium that combines a Term Life policy with a bank account. You pay as much as you want, with the leftover funds earning a variable interest rate.
- Variable Universal Life works the same way, except that you can choose mutual fund-type options for investing your cash value.
- Medical exam: As with Term Life, the insurance company will require you to take a physical examination. If you have a medical problem, you'll probably pay higher premiums,
- Investment benefits: You won't owe state or federal taxes while the policy's cash value grows until you make a withdrawal (at which time your tax rate will probably be lower). What's more the "forced savings feature - requiring you to pay premiums - creates a financial safety net.
- Costs: Because Permanent Life funds the policy's cash benefit, as well as a death benefit, you'll pay significantly higher premiums than for the same amount of Term coverage. Permanent Life also sets sales, administrative, and fund-management fees, as well as a mortality risk charge. In addition, if you cash in the policy during a certain period (usually 10 or 20 years) you might have to pay a surrender fee.
For more information on Permanent Life insurance, please feel free to get in touch with us at any time.