Permanent insurance, including whole life insurance and universal life insurance, has two key features. First, permanent insurance provides coverage throughout the life of the insured person. Second, permanent life insurance provides insurance combined with savings and investment components. This allows permanent life insurance policies to build a cash value that can be borrowed against to help fund future goals, such as a child's college education.
Types of Permanent Insurance
There are two main types of permanent life insurance, whole life and universal life.
Whole Life Insurance offers permanent life insurance with a fixed annual premium. Whole life policies accumulate cash values and the death benefits gradually increase with time.
Universal Life Insurance is permanent life insurance with a flexible annual premium and flexible death benefit. In a universal policy, you generally have a minimum payment equal to the cost of term insurance, plus administrative costs. Any payments made above the minimum are credited to the cash value component of the policy.
In both whole life and universal life, the investing abilities of the insurance company that issues the policy is extremely important, as the cash value and death benefit that accumulate will depend, in large part, on the success of the investment decisions that the insurance company makes with your money.
If you would like some additional control over the accumulation of wealth in your permanent insurance policy, "variable" insurance may be appropriate for you. Variable insurance allows the insured to choose from a number of investment choices for the cash-value of the permanent policy. This selection process works much like a company 401-K plan. There is variable whole life insurance and variable universal life insurance.
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