Are you considering a permanent life insurance policy? That could be a wise decision if you need lifelong life insurance protection. As its name suggests, permanent life insurance lasts for your entire life, assuming you keep up with the premium requirements. The lifelong coverage is the major difference between permanent insurance and its counterpart, term insurance, which provides coverage for only a limited amount of time.
Permanent policies can also provide growth potential, as most have cash value accounts that offer some form of tax-deferred accumulation. You can use your cash value to buy additional coverage, adjust the premiums downward or even generate tax-efficient income.
Not all permanent policies are the same, though. There are many different types with a broad range of features and benefits. Most policies, however, fall into one of three categories: whole life, universal or variable universal. Below are descriptions of each type to help you better understand which may be best for your needs:
Whole life insurance is perhaps the most straightforward of all permanent policies. In a whole life policy, you pay a set premium in exchange for a certain amount of coverage. A portion of your premium is used to pay for the insurance protection, and another portion is deposited into the cash value account.
In a whole life policy, you can accumulate cash value in the form of dividends, which are paid into your policy by the insurance company. You can let them accumulate tax-deferred, or you can use them to buy additional coverage. You can also elect to have the dividends paid to you in the form of cash.
While it’s possible for the dividend payment to change from year to year, whole life policies tend to have very consistent growth rates. It makes a good choice for someone who wants permanent insurance with predictable coverage and premiums.
Universal life insurance is similar to whole life, but with a little more flexibility. In a universal life policy, your accumulation comes from interest payments. The rate depends on a number of factors, including prevailing interest rates. Like whole life insurance, your accumulation in a universal life policy is tax-deferred.
One of the major differences between universal life and whole life is flexibility. In a universal life policy, you can adjust everything from the death benefit amount to the premium amount to even the premium payment date. Universal life is a good option for someone who wants permanent coverage but also wants flexibility to make changes to the policy in the future.
Variable Universal Life
Variable universal life insurance is much like universal life, with the exception that the accumulation comes from market performance rather than interest payments. You can allocate your cash value among a set of subaccounts, which are similar to mutual funds, inside the policy. Most policies offer a wide range of choices so you can build a portfolio to meet your needs and risk tolerance.
Variable universal life policies also offer flexibility. You can adjust your premium amount, death benefit amount and more, assuming you are meeting the minimum premium requirements. A variable universal policy may be a good fit for someone who wants permanent coverage but also wants greater cash value accumulation potential than would be offered by universal or whole life policies.
Ready to develop your permanent insurance strategy? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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