Types of permanent life insurance
[social_share]Term life insurance is a form of life insurance that covers a person for a short period of time. It is closest to classic insurance in that it takes premiums against a certain event and pays out if that event happens. It is also time limited.
However there are other types of life insurance that are less like classic life insurance, and these are the permanent life insurance policies. These include whole life policies, variable life insurance and universal life insurance.
A whole life insurance policy is designed to provide the insured and their family with insurance coverage until they die, so the whole of their life. There is no fixed period in this coverage. Whole life insurance has been called “cash value” insurance as it builds up a cash value over the lifetime of the insured person.
In essence the whole life policy is both an investment and insurance vehicle. The investment vehicle means that the premiums are invested and earn interest and other returns. This will mean that a cash value is accumulated over this time.
The insurance element is covered by the fact that there will be a stated amount that is paid when the insured person dies.
Variable life insurance is one of the more popular types of permanent life insurance. A variable life policy will allow the policy owner to invest a proportion of the premiums that are paid into the stock market. There is a risk and reward calculation in this as investing in the stock market offers better returns over the long term, but unlike interest bearing accounts it is not guaranteed that the capital will be preserved. However, although both the death benefit and the cash value of the policy may decline it will always keep at least at a defined level. This guarantee will make a policy more expensive as the fall in value means that the premiums have to increase to keep the life insurance policy active.
Another popular type of permanent life insurance is universal life which is similar to whole life insurance. Universal life is a renewable policy — all the elements, the premiums, death benefits and the investment component can be changed depending on the changing circumstances of the beneficiaries and the insured. It is also possible to move money between the investment and insurance parts of a universal life policy. It is also possible to pay premiums out of interest from accumulated savings.
