Permanent life insurance, like with many things in life, comes with benefits and drawbacks.
Having an insurance policy that spans the whole of your life can only seem like a good thing. Is it worth it though?
What kind of policy you choose all comes down to your own personal circumstances. If you are wanting life insurance to cover the length of your mortgage or whilst you have young dependants living at home then you may be better with term life insurance.
What is permanent life insurance?
As the name suggests permanent life insurance is a policy that spans the whole of your lifetime, this is different to term life insurance which only covers you for a certain number of years and then the policy is cancelled.
With permanent life insurance it doesn’t matter if you pass away after five years or fifty, your beneficiaries will receive a death benefit.
What are the benefits?
There are two main benefits to having permanent life insurance –
- You have lifetime coverage no matter what age you pass away.
- Most permanent policies come with a separate cash value. When you pay your premiums, part of it is taken to pay towards your policy and any administrative costs and the rest is kept in a separate investment account where over time it will grow. At a future date you can choose to withdraw or borrow against this cash value or even use it to cover the cost of your premiums.
What are the disadvantages?
- The premiums for permanent life insurance tend to be more expensive than term life insurance. This is due to the fact that the insurance company knows that at some point they will need to pay out a death benefit.
- Not all permanent life policies come with the option to increase or decrease your coverage based on your circumstances.
- It can take a long time to build your cash value. In the first few years most of your premiums will be used towards your insurance policy.
- The growth of your cash value can be helped or hindered by your investments in the market. You have the chance to make great returns or lose a significant amount.
What are the different types of permanent life insurance?
There are several types of permanent life insurance and they all have differences between them.
- Whole life – The premiums with whole life insurance stay the same for the length of the policy. The growth rate for the cash value is guaranteed.
- Universal Life – There is a minimum and maximum premium amount but you are able to choose what you pay between these two numbers. There is a guaranteed minimum annual return although the growth of the cash value is dependent on the market.,
- Variable Life – Premium amount will vary based on the policy. You can choose how to invest your cash value. You will be given several options to choose from.
- Indexed Universal Life – Minimum and maximum premiums set although you can choose what to pay between these amounts. There are caps on the annual returns for your cash value although there is a guaranteed minimum annual return.
- Variable Universal Life – Minimum and maximum premiums are set although you can choose what to pay between these two amounts. You can also choose how to invest the cash value.
- Guaranteed Universal Life – The premiums stay the same to the length of the policy. There is little to no cash value policy.
How do I know if a permanent life insurance policy is right for me?
What kind of policy you choose all comes down to your own personal circumstances. If you are wanting life insurance to cover the length of your mortgage or whilst you have young dependants living at home then you may be better with term life insurance. This will guarantee that if you pass away during the insurance term, those depending on your income will be financially looked after.
However if you are wanting cover that will last a lifetime or you are wanting the added bonus of a cash value which you can draw on at a later date then the more expensive premiums of permanent life insurance may be the perfect fit for you.
Permanent life insurance needs to be carefully monitored so if you are wanting a hands off approach then it may not be the best option.
To help you find the best level of cover then it is always advised to speak to a qualified life insurance broker. They know the insurance market inside out and have the expertise to be able to advise you on the best type of life insurance for your own circumstances.