Permanent Life Insurance is an umbrella term for life insurance plans that do not expire (unlike term life insurance) and combine a death benefit with a savings portion. This savings portion can build cash value - against which the policy owner can borrow funds, or in some instances, the owner can withdraw the cash value to help meet future goals, such as paying for a child's college education. The two main types of permanent life insurance are whole and universal life insurance policies.
Whole Life Insurance policies have a fixed premium, meaning you pay the same amount each and every year for your coverage. Much like universal life insurance, whole life has the potential to accumulate cash value over time, creating an amount that you may be able to borrow against.
A whole life insurance policy can be described as providing life insurance protection with an accumulation feature, and might be a good choice if you want a policy with:
- Level premiums that stay the same for the life of the policy
- Cash value accumulation that you can use while you're still alive
- Protection that you can't outlive as long as your required premium payments are timely made
Universal Life Insurance Policies offer flexible premiums that may allow you to adjust how much you'll pay each year by accessing some of the policy's cash value (though you will need to pay the minimum premium amount or the policy will lapse). Depending on your policy's potential cash value, it may be used to skip a premium payment, or be left alone with the potential to accumulate value over time.
Potential growth in a universal life policy will vary based on the specifics of your individual policy, as well as other factors. When you buy a policy, the issuing insurance company establishes a minimum interest crediting rate as outlined in your contract. However, if the insurer's portfolio earns more than the minimum interest rate, the company may credit the excess interest to your policy. This is why universal life policies have the potential to earn more than a whole life policy some years, while in others they can earn less.
A universal life insurance policy might be a good choice if you want:
- The flexibility to adjust your premiums and coverage amounts
- Cash value that you may be able to borrow from while you're still alive
- Permanent life insurance protection and access to cash values