WHole and Universal life
WHAT IS PERMANENT LIFE INSURANCE?
You may be familiar with the different names of life insurance. So, what is permanent life insurance? Unlike term insurance policies, permanent lasts your entire life. Of course, this only happens if premiums are paid. A term policy only covers you during the specified number of years set. However, permanent insurance keeps going. Whether you pass away within a short time after activation or, not for 60 years, your death benefit gets paid.
Whole Life Insurance
There are a few types of permanent life insurance. Whole life insurance is a fairly well-known insurance product. Just like term insurance, whole life offers a death benefit, too. However, whole life offers more. First, whole life insurance may build cash value. You pay your premiums, and your insurance value can grow over time. In addition, you may be able to access your cash value from your policy. This can be done for any reason. This can be useful for unexpected expenses and more.
Another protection from whole life: securing your eligibility. With most life insurance, there is a medical exam or review of medical history. This information may affect the premium. However, let’s say a healthy person buys a 20-year term policy. Towards the end of the policy, they develop a medical condition. For a new term policy, that makes them uninsurable. That person now has very few options for life insurance.
On the other hand, if that person had a whole life policy, coverage remains. No matter the medical condition, they would still have death benefits. Of course, premiums must be made on time.
Although both whole life and universal life are “permanent” insurances, they have some differences. Namely, universal life allows for more flexibility. You have choices in how much you pay. In addition, you can choose more options. You can select from variable universal life (VUL) or indexed universal life (IUL) policies, among others.
VUL insurance, however, carries risk. Because its rate is based on the stock market, your principal can go down. Also, a VUL offers no guarantee on the interest rate. There is upside potential. But, there is also risk.
IUL policies protect your principal cash value, while allowing for a reasonable rate of return.* The big benefit of an IUL is that you can take an income during retirement, tax-free. This makes an IUL worth considering as you approach or enter retirement.
If the performance of the insurance company goes up, you may also see an increase in the cash value of your permanent life insurance account. In fact, at some point, the dividends you get may become high enough to pay your premium for you. In other words, the policy may begin to pay for itself.
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*Reasonable rate of return over time.