Permanent life insurance provides insurance coverage for your entire lifetime. As a matter of fact, in many cases, permanent life insurance is the safest way to make sure you have coverage when your time on this earth runs out (we call this “winning the game of life insurance”).
Remember – a life insurance policy is worthless unless it’s in force when you die.
That being said, every life situation is unique and that’s why life insurance comes in many different shapes and sizes. Speaking with an experienced professional can help you understand what kind of policy is best for you.
Is Permanent Life Insurance Right for You?
Permanent insurance is the granddaddy of life insurance policies. It’s more expensive than term life insurance, but it provides several important advantages:
- Your beneficiaries are guaranteed to receive the death benefit when you die,1 generally income tax-free. You can’t outlive the coverage (unlike term) and the insurance company can never cancel your policy as long as your premiums are paid on time.
- Your premiums can be structured to remain level for life. The younger and healthier you are when you buy, the lower your premiums will be. This can make a huge difference in how much you pay in the long run. Renewing a term life insurance policy at the end of a 20- or 30-year term may be surprisingly expensive – if you can even qualify for one. As you get older and/or your health deteriorates, it gets harder to qualify for a new policy.
- Permanent life insurance policies typically build cash value that you can access at any time.
- If your policy is accumulating cash value, the cash surrender values grow on a tax-deferred basis.
1 Assuming you purchase a guaranteed, no lapse policy and you pay your premiums on time each year.
Three Types of Permanent Life Insurance
Whole Life Insurance
Whole life is the “Rolls-Royce” of life insurance. It costs more, but it does more than other kinds of coverage. Whole life policies also develop significant guaranteed cash values which the policyholder can access at any time. Each year, the cash values grow!
Also, premiums can usually be structured to stay level for as long as you live. Or, if you wish, they can be paid over a shorter period, such as 20 years, 10 years, or even a single premium for a lifetime of guaranteed coverage. For those who want the best of everything, whole life protection is an amazing financial instrument.
After 30 years in the industry, we haven’t found a person who has owned a whole life policy for 20 years or longer that isn’t happy with it.
Universal Life Insurance
Universal life insurance offers permanent coverage with a certain amount of built-in flexibility. Policyholders can change their premiums and death benefits to adjust to changes in their lives and goals. Universal life insurance is typically less expensive than whole life. They can still be structured with level premiums and guaranteed death benefits for life.
And, as with whole life, universal life insurance policies can build cash value. But cash values on today’s universal life policies – especially those that are less expensive than whole life policies – tend to be much smaller.
Survivorship or Second-to-Die Life Insurance
A second to die life insurance policy, also called survivorship life insurance, covers two individuals (usually a married couple) and delays the payment of the death benefit until the second person’s death. It’s generally less expensive than buying two individual life policies and has been popular with wealthy couples since the mid-1980s as a method of offsetting their estate tax liabilities.
Survivorship life insurance may be a particularly attractive option if:
- You want to protect your estate and/or pay the taxes on behalf of your children
- Set up a trust fund to support your children/grandchildren
With a second to die life insurance policy, the death benefit arrives just in time to make those things happen.
You must be wondering how much life insurance does someone need? Well, take our nifty calculator for a spin and get some real numbers.
Nifty Life Insurance Calculator
Our Life Insurance Calculator can help give you a rough idea of how much coverage you’ll need to make sure your family is financially protected when you die.
Annual income before tax: $Annual income is an important factor in determining your needs, but it’s not the only one. When you die, your life insurance is like your final paycheck.
% of income needed by dependents: %Because you’ll be gone, presumably they won’t need as much as you’re currently earning. Typically, 80% of your current income is a good place to start.
Your Age: yearsThe younger you are, the more years of your income your family stands to lose when you die.
Number of years benefits are needed:If you died tomorrow, how many years of income do you want to provide for your family?
Annual inflation rate (estimate): %Because of inflation, in order to maintain your family’s current standard of living, you’ll need to plan for increases in their annual income to keep pace. Historically, inflation has averaged between 2% and 4%.
Annual interest rate (estimate): %This is an assumption as to how much you believe your spouse will be able to earn on the death benefit proceeds. We have found that most surviving spouses are usually very conservative in how they invest the death benefit. The most common thing we see is that the money gets deposited into a bank account. You know your spouse better than anyone. Pick a number that you feel your spouse will be able to comfortably earn on the proceeds.
So what’s next? Call us at 800-442-9899 and let’s chat about the types of coverage that may make the most sense for you.
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