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Permanent and Whole Life Insurance is different from term insurance because it offers both death benefit protection and a cash value component.
There are many different types of permanent life insurance. Whole life insurance offers coverage for the full lifetime of the insured, and its savings can grow at a guaranteed rate. Universal life insurance also offers a savings element in addition to a death benefit, but offers different types of premium structures and may earn based on market performance.
The simplest type of permanent life insurance coverage is whole life. With this type of coverage, the premium amount is locked in and remains the same throughout the lifetime of the policy.
When a policy contains guaranteed cash value for a guaranteed premium, the additional premium can be used to grow the cash value. Gains may be used to increase the death benefit, borrow against later, or help keep the policy in effect.
Cash value accumulates on a tax-deferred basis, similar to assets in many retirement or college savings plans. Death benefits paid to beneficiaries generally are not subject to federal income tax.
The simplest type of permanent life insurance coverage is whole life. With this type of coverage, the premium amount is locked in and will remain the same throughout the entire lifetime of the policy.
This can be helpful for those who need to stick to a budget. It also means that if a person purchases a whole life policy at a very young age, they will still pay the same amount of premium when they get older, regardless of advancing age or even an adverse health issue.
In some cases, where a person’s pre-existing conditions require the individual to buy high-risk life insurance, some graded whole life policies are the only option.
The cash in the cash value component of a whole life insurance policy is allowed to grow on a tax-deferred basis. This means that the gains on these funds will not be taxed until or unless they are withdrawn, allowing them to compound over time.
At first, the cash in a whole life insurance policy will grow slowly. This is because the majority of the early premium dollars go toward paying the agent’s commission and insurance costs. However, over the years, the cash in a whole life policy can steadily grow, often with a minimum guaranteed rate of return.
Some whole life insurance policies may even provide dividends to their policyholders. Because these are a return of premium to the policyholder, they are also not taxed. Dividends can also help the cash value in a policy grow significantly, although they are never guaranteed.
When an insurance policy contains a guaranteed cash value for a guaranteed premium, it means the premium is larger at the beginning of the policy than it would be in a term policy. The additional premium can be invested in a separate account controlled by either the insurer or the policyholder in order to grow the cash value.
Whatever gains are earned can be used in a few different ways: to increase the death benefit, to borrow against for some later use, or to keep the policy in effect so you can stop paying monthly premiums.
If you have a cash value policy, it is often best to hold it until death or retirement so that you can allow for probable gains.
Cash value accumulates on a tax-deferred basis, similar to assets in most retirement and college savings plans. Also, death benefits that are paid to the beneficiary generally are not subject to federal income tax.
These tax benefits within universal life insurance policies are similar to 401(k)s and IRAs. Annual earnings on the investment part of the policy do not get taxed, and any taxable gains when cashing out on a policy can be reduced by the amount of insurance protection the plan provides.
Furthermore, in the case of death, the policyholder’s gains usually are not taxed.
With a Survivorship Life Insurance policy, there is more than one person covered by the policy purchased. The policy can be set up in a couple of different ways.
One way is first to die. With this type of policy, the coverage is designed to pay out when the first person passes away. In most instances, the premium charged for this type of policy can be higher than for a policy on just one insured, but it can often be less than purchasing two separate life insurance policies.
There are also joint and survivor, or last to die, life insurance policies. With these policies, the coverage pays out when the second person on the coverage passes away. These can either be term or permanent coverage.
These policies can also have other advantages, in that they typically cost less than two separate life insurance policies, and they may have less strict underwriting criteria, especially if one of the individuals is in very good health.
As its name implies, No Medical Exam Life Insurance coverage will not require an applicant to undergo a medical examination as part of the underwriting process.
In many cases, when applying for life insurance, individuals must meet with a paramedical professional who will ask in-depth health questions and take blood and urine samples. Because of this, those who have certain types of adverse health conditions may be denied the life insurance they need.
With no medical exam coverage, they could be approved for the coverage they need, and because there are no medical underwriting requirements to contend with, these policies are often approved within just a day or two after application.
While no medical exam life insurance is the best option for some, we recommend that if you feel passing a typical life insurance medical exam is possible, you try one of the above options before choosing this type of life insurance. This can help ensure you are getting the best value and possibly help achieve lower premium rates.
We at Healthcare American would like to help you decide what type of life insurance policy is best for your individual situation.
Please give us a call, and let us help you understand what is available and assist you in purchasing the right plan for you and your loved ones.
Permanent life insurance is coverage intended to last for the insured’s lifetime, provided premiums are paid. It usually includes both death benefit protection and a cash value component.
Whole life insurance is designed to last for the insured’s lifetime and may build cash value. Term life insurance lasts for a specific period and generally provides death benefit protection only.
Yes, whole life insurance typically has a locked-in premium that remains the same throughout the lifetime of the policy, as long as the policy terms are met.
Cash value is a savings component within certain permanent life insurance policies. It may grow over time and can sometimes be borrowed against, used to increase benefits, or help keep coverage in force.
Death benefits paid to beneficiaries are generally not subject to federal income tax. However, individual tax situations can vary, so it is wise to consult a tax professional.
Survivorship life insurance covers more than one person. It may pay when the first insured person dies or, in a joint and survivor policy, when the second insured person passes away.
No medical exam life insurance does not require a medical exam as part of the underwriting process. It may be approved quickly, but premiums may be higher than medically underwritten options.
Permanent life insurance may be suitable for people who want lifetime coverage, death benefit protection, potential cash value growth, and a policy designed to stay in force beyond a set term period.
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