What Is Permanent Life Insurance
And How To Use It For Your Financial Advantage

Permanent life insurance VS term – Advantages and Pros and Cons

So what is permanent life insurance? Permanent life insurance typically combines a death benefit with a savings portion. There are a number of different types and each type has its own set of characteristics. One variation of permanent life insurance is known as whole life insurance, the most common being “participating” (PAR) dividend paying whole life insurance. This type of contract provides tax free death benefit coverage, guaranteed minimum premiums for life, and guaranteed daily cash value accumulation for the insured person’s life span to a maximum of age 100.

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Here are the advantages of Permanent life insurance vs term

Advantages of Permanent Life Insurance

Permanent Life Insurance has many advantages. These will vary based on the person who owns it and the key to having the coverage is often unique to the policy owner. One of the main purposes for owning permanent coverage is to take advantage of tax advantaged savings accumulation inside of a cash value contract. The savings (or cash value) can then be used as a supplement or a replacement for retirement income. By accessing cash values (typically via a collateralized loan), the net death benefit passes to the named beneficiaries tax free. Participating (PAR) dividend paying Whole life insurance has been in existence in Canada since 1847, and is generally considered one of the safest and most secure tools for wealth accumulation and transfer. This is the only type of insurance contract that grants the policy owner co-ownership in the life insurance company and participation in the divisible surplus by way of annual dividends. Here is a summary of the key advantages of permanent coverage using Participating (PAR) dividend paying whole life.

  1. A growing tax free death benefit that will be paid on a guaranteed basis plus any accumulated Paid up Insurance built up over time.
  2. Cash Value that is contractually guaranteed to grow daily to match the total death benefit by Age 100 of the life insured
  3. Guaranteed minimum premium for life (to age 100) with no increases or hidden charges.
  4. Guaranteed cash value that cannot go down and cannot be lost to a risky stock market, bad economy or government intervention
  5. Liquid and accessible pool of financial value by either a guaranteed policy loan provision or collateral assignment
  6. Dividends paid when declared annually that cannot be repossessed or lose value, and when dividends are used to purchase paid up additions, they do not trigger a taxable event.
  7. When accessing policy loans, the total cash value of the policy continues growing daily and uninterrupted. The policy owner controls the repayment schedule of the loan

 

The Benefits Of Permanent Life VS Term Life

Term life insurance is a tool that provides key advantages at certain life phases. Fundamentally this type of policy is like being a renter. You get to live in the home but you’ll never own it. Over the course of one’s lifetime, term insurance can become the most expensive of all insurance coverage. Statistically, less than 2% of term life policies will ever pay a death claim which is why the premiums are low. Because the probability of premature death is low, term policies are actuarially “engineered” to cover the necessary costs for paying the claims that will actually happen. If the likelihood of death is over age 80 and you get a policy at age 30 that is for a 10 year term, every 10 years as you age closer to 80 the premium must increase because you are getting closer to your projected mortality. The premium is increasing to cover the rising cost of an expected payout. Most term life policy holders cancel their coverage when they need it the most. Why? Because the premium becomes cost prohibitive over time. Because of this almost all term policies will expire due to rising costs before the life insured person does. It is a function of the math to cover expected risks on the insurance companies money pool.

With permanent insurance the actuaries and rate makers at the Life Insurance Company base the minimum premium required on what it would take to make sure they can provide that same amount of coverage to a personal all the way to age 100. It is obvious it would take more premium to cover the same benefit to age 100 versus for a 10 year period. Far too often we hear about a family member or friend of the family who has passed away and they have no life coverage. This is very common in the baby boomer generation who were told to buy term coverage during their lifetime. When they actually need the coverage in their golden years there is none because they cancelled it when it became too expensive to maintain. Participating (PAR) dividend paying Whole Life on the other hand provides a level guaranteed premium that can never increase. And with the added advantage of being able to put in additional deposits above the minimum required, a policy can become “premium offset eligible”. And with every dollar of premium deposited, the insurance company is piling up cash value and a policy can be cost neutralized in a short period of time if designed optimally.

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FAQs

Whole Life Insurance which may be referred to asr rdinary life. This is the most common type of permanent insurance policyy.
Whole life can be Non participating as well as participating. Participating Whole life pays dividends when declared by the life company and can accumulate paid up additional whole life insurance for an increasing death benefit and cash values.
Universal or adjustable life. This type of policy offers a wide number of options and potential investment components. It may also shift many of the risks that are typically proceed into whole life policies onto the policy owner instead. There are a number of styles that derivatives of Universal life such as

  • Variable life.
  • Variable-universal life.
  • Indexed Universal Life

Whole or ordinary life. This is the most common type of permanent insurance policy. …
Universal or adjustable life. This type of policy offers you more flexibility than whole life insurance. …
Variable life.
Variable-universal life.
(resource www.iii.org)

  • Permanent life insurance earns cash value.
  • All types of life insurance policies provide a death benefit to the beneficiaries; most of which are tax-free.
  • Permanent life insurance provides lifelong coverage.
  • Whole life insurance premiums never change.

Permanent life insurance policies offer a death benefit and cash value. The death benefit is money that's paid to your beneficiaries when you pass away. … Permanent life insurance lasts from the time you buy a policy to the time you pass away, as long as you pay the required premiums.
(resourse allstate.com)

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