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.
*Proceeds from an insurance policy are generally income-tax-free, and if properly structured, may also be free from estate tax. Income-tax-free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce the death benefit, or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract. The Host and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. This content is not intended to serve as the basis for any investment or purchasing decisions, nor does it recommend or involve the purchase, holding, or sale of a security. All figures herein are hypothetical and for illustrative purposes only to explain general concepts. No figure is to be relied upon as being accurate nor a guarantee or projection and is meant only as a partial overview of some relevant features and benefits of general insurance products that may be in the marketplace, and whose availability will be dependent on the State of residence of the consumer, and their individual suitability for the product they are wanting to purchase. Where insurance products are mentioned, any and all guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.