Did you know that just over 50% of Americans are covered by life insurance? Even those who do decide to take out a policy can be confused about the myriad policies on offer. If you are taking out insurance do you know the difference between them?
When it comes to policies some offer short-term coverage while others can act as more like investments. Read on as we discuss why you should consider the permanent life insurance policy.
What is Permanent Life Insurance?
Permanent life insurance is a policy that does not expire. This is different from term life insurance, which runs for a specified amount of time. Policies of this type usually combine both a saving element and a payout upon death.
Whole Life Insurance and Universal Life Insurance
The most popular types of permanent life insurance are whole and universal. While similar, they both have some fundamental differences.
Whole life insurance provides death benefit coverage for the life of the insured party. It will also include a saving element in which cash builds with a fixed interest rate on a tax-deferred basis.
Universal life insurance is more flexible. There are no fixed premiums and you can decide on when you pay them. However, if you have not funded it adequately it can end early and the death benefit is not guaranteed.
Other Types of Life Insurance Policies
There are also two other policies, known as variable universal life and variable life. Variable life insurance allows part of the premium to be invested. This is in the insurance companies’ own investment fund.
Variable universal life allows for investment using its cash value with flexible premiums and death benefits. There are also different ways to access these policies. For example, a veterans life policy can be converted to a whole life policy.
The Advantages of Permanent Life Insurance
Permanent life insurance policies provide a death benefit to your family upon your demise. This can happen without the constraints that are often inherent in term life insurance. You are also putting money into an account with tax advantages, which you can take from as you wish.
Disadvantages of Permanent Life Insurance
Premiums are high when it comes to permanent life insurance. When choosing it, you should be sure of your financial situation now and in the future. There is also the possibility that you use so much of the accrued capital it takes away from the death benefit.
Deciding Between a Permanent or Term Insurance Plan
Select whole life insurance only if you can afford the higher premiums. When you name your beneficiaries, the money can also become an inheritance. As it builds cash value this is great if you have a dependent who will need the money after you pass.
Term insurance should be chosen if you need coverage for a specific period. It is affordable because it is not used as an investment vehicle. Therefore if you want low-cost protection it is the best policy.
Investing in a Permanent Life Insurance Policy
Now you know the benefits of a permanent life insurance policy, you can decide if it is for you. If you want to invest your money it is the better option. For short-term coverage choose term insurance.
This article is one of many to help you manage your finances. From insurance to investments we can help organize your money in the coming year.