A life insurance policy is the best gift that you could ever leave your loved ones. There are different kinds of life insurance policies, including term life, whole life and universal or variable life. Two common types of life insurance are term life and whole life which offer a variety of different benefits not only for a policy holder, but also for their beneficiaries.
What is Permanent Life Insurance?
It is important to understand the basic differences between a term and a whole life policy before you make a decision on which policy is right for you.
A term policy is typically priced more competitively than permanent life insurance and will provide a death benefit for a certain period of time, usually between 10 and 30 years. You can choose to extend your policy after that time, but your premiums will go up.
A whole life insurance policy has a death benefit that will protect you for your whole life. The premiums are higher than they are for a term policy, but they will never change. That is one of the main reasons why it is valuable to purchase a whole life policy while you are still young. In this instance, you can secure a competitive premium rate that will last for as long as you keep your premiums paid up.
The Benefits of Permanent Life Insurance
Unlike a term life policy, a whole or permanent life policy gains cash value and can be used in a variety of different ways. If you need a loan and don’t have any other way to get one, you can take a loan out against the cash value of your policy. Although this loan will reduce the total death benefit of the policy, you have the option of paying it back, or just taking a reduced death benefit. Keep in mind that you will still need to pay the interest on the loan or you may risk having the policy lapse.
Another benefit of a permanent life insurance policy is that it can be used as collateral for a loan, without having to withdraw any money from the policy. In this instance, a bank will typically ask to be added as an assignor on the policy and they will receive the death benefit in the event that you pass away before the loan has been paid back.
Permanent life insurance also has many benefits for retirees. The cash value can be accessed if you find that your retirement funds simply aren’t enough to meet your needs. In fact, many people view a whole life insurance policy as a forced savings account.
Term vs. Perm
Although a term life policy is much less expensive initially, it does not have the same value as a whole life policy. Term policy premium rates are only good for the life of the term – after that period has elapsed, the rates will go up, based on your attained age. As you go past the 50 to 55 year old mark, the premiums can double, if not triple.