Last week we covered the basics of temporary or term life insurance. Boring, I know, but not as annoying as that AFLAC duck. I’m going to shoot that duck!!! This week we want to take a moment and cover the basics of permanent life insurance.
It is a bit more complicated, but also has many great uses. I doubt you’ve even heard of some of these uses, but they are so neat you may actually like life insurance by the time we’re done. Maybe…
There are two basic types of permanent insurance: Whole Life and Universal Life. Whole Life Insurance is set pretty well in stone at the time it is applied for. In other words, the death benefit, premium payment schedule are set. Universal Life Insurance, on the other hand, has neither a set premium nor death benefit. Your premium is tied to your death benefit and there’s a lot of flexibility in a Universal Life policy.
The strengths of a Whole Life policy are found in their consistency and guarantees. The strengths of a Universal Live policy lies in it’s flexibility. Both will cover you and provide a death benefit for your lifetime as long as you pay the premiums. If you remember, term life insurance only insures you for a certain set period of time.
One thing to note is that permanent life insurance is typically more costly than term insurance. This is because of two reasons. First, there is a permanent guarantee that the policy will pay your death benefit. That guarantee means it’ll cost you more than just keeping the insurance company on the hook for 10 years on a term policy. Chances are you may not die in the next ten years. The second, and for me the neatest thing, is that permanent life policies can accumulate cash value. Sometimes they accumulate cash value at an amazing rate.
This cash value in a whole life policy is based on an interest rate and sometimes there is an additional dividend paid on the policy that accelerates cash accumulation. With universal life insurance cash can accumulate based on an interest rate, and interest rate that follows a market index like the S & P 500, or the cash value can actually be invested directly into the market. You should note that the way your universal life policy accumulates cash value depends on the type of life insurance you purchased, so make sure your advisor knows what your needs and desires are with this policy so you get the right policy the first time. I won’t elaborate in this article, but I am going to be bold enough to say that nobody should ever purchase a variable life insurance policy, the kind that invests you directly into the market. If you want to know why, email me @ ed@prospersbs.com .
Finally, let’s briefly look at the different ways you can use permanent insurance, so you can decide if it’s something that should be in your financial plan. A quick list includes: estate planning, retirement savings plans, business planning, buy/sell agreements, deferred compensation plans, college funding, and more!
I am a big fan of permanent insurance, especially for it’s cash building potential. Like any financial tool, you need to talk to an advisor to see if it’s the right fit. You wouldn’t use a hammer to paint your house and you shouldn’t use permanent life insurance unless it fits your circumstances. But chances are… it does.
It is a bit more complicated, but also has many great uses. I doubt you’ve even heard of some of these uses, but they are so neat you may actually like life insurance by the time we’re done. Maybe…
There are two basic types of permanent insurance: Whole Life and Universal Life. Whole Life Insurance is set pretty well in stone at the time it is applied for. In other words, the death benefit, premium payment schedule are set. Universal Life Insurance, on the other hand, has neither a set premium nor death benefit. Your premium is tied to your death benefit and there’s a lot of flexibility in a Universal Life policy.
The strengths of a Whole Life policy are found in their consistency and guarantees. The strengths of a Universal Live policy lies in it’s flexibility. Both will cover you and provide a death benefit for your lifetime as long as you pay the premiums. If you remember, term life insurance only insures you for a certain set period of time.
One thing to note is that permanent life insurance is typically more costly than term insurance. This is because of two reasons. First, there is a permanent guarantee that the policy will pay your death benefit. That guarantee means it’ll cost you more than just keeping the insurance company on the hook for 10 years on a term policy. Chances are you may not die in the next ten years. The second, and for me the neatest thing, is that permanent life policies can accumulate cash value. Sometimes they accumulate cash value at an amazing rate.
This cash value in a whole life policy is based on an interest rate and sometimes there is an additional dividend paid on the policy that accelerates cash accumulation. With universal life insurance cash can accumulate based on an interest rate, and interest rate that follows a market index like the S & P 500, or the cash value can actually be invested directly into the market. You should note that the way your universal life policy accumulates cash value depends on the type of life insurance you purchased, so make sure your advisor knows what your needs and desires are with this policy so you get the right policy the first time. I won’t elaborate in this article, but I am going to be bold enough to say that nobody should ever purchase a variable life insurance policy, the kind that invests you directly into the market. If you want to know why, email me @ ed@prospersbs.com .
Finally, let’s briefly look at the different ways you can use permanent insurance, so you can decide if it’s something that should be in your financial plan. A quick list includes: estate planning, retirement savings plans, business planning, buy/sell agreements, deferred compensation plans, college funding, and more!
I am a big fan of permanent insurance, especially for it’s cash building potential. Like any financial tool, you need to talk to an advisor to see if it’s the right fit. You wouldn’t use a hammer to paint your house and you shouldn’t use permanent life insurance unless it fits your circumstances. But chances are… it does.
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