Permanent insurance offers lifelong protection, and you can accumulate cash value on a tax-deferred basis. This cash account can be used for a variety of purposes, from helping you out of a tight financial spot, to providing funds to take advantage of an opportuynity, to supplementing your retirement income. The downside? Initial premiums are considerably higher than what you would pay for a term policy with the same face amount.
Fixed Permanent Insurance falls into three main categories. Whole Life is the simplest and most common option. Premiums remain he same for life, and the death benefit and rate of retun on your cash value are guaranteed. Universal Life offers the flexibility of varying the amount of your premium payments. It also offers the certainty of a guaranteed minimum death benefit as long as your premiums are sufficient to sustain it. If you do not maintain those minimum premiums, your death benefit can be reduced. Indexed Universal Life offers the same benefits of Universla Life, but the return on your cahs value are flexible from a minimum (floor) no less than 0% and a maximum (cap) that ranges from product to product but often over 12%.
Features that are Unique to Permanent Insurance:
Living Benefits - Access to cash
A policy's cash value can be surrendered, in total or in part, for cash taht can be put toward important uses like a child's education, a business opportunity or supplemental retirement income. Also, you can borrow from your insurer at relatively low interest rates and use the cash value as collateral. The loan is not dependent on credit checks or other restrictions like loans from most financial institutions. Keep in mind that borrowing or withdrawing funds from your policy will reduce its cash value and death benefit if not repaid.
Flexibility
If you need to stop paying premiums, the cash value can keep your insurance protection in force for a period of time.
Tax Advantages
Cash value accumulates on a tax-deferred basis, similar to assets in most retirement and college savings plans. Death benefits paid to the beneficiary generally are not subject to federal income tax.
Guaranteed Coverage
As long as you don't allow your policy to lapse, you'll have the coverage for life and won't need to worry about being unable to afford coverage if your health deteriorates.
Stable Premiums
With many tupes of permanent insurance, premiums will remain constant or stable over your lifetime. With term insurance, premiums often increase as you age.
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