A permanent life insurance policy assures financial support to the family members in the event of a policyholder’s death. There is no specific term of this type of life insurance, as the policy generally remains valid over the lifetime of a policyholder. This type of life insurance policy was initially introduced as a whole life insurance policy.
A person buying permanent life insurance has to pay a specific premium on a monthly, quarterly or yearly basis. The premium of this policy is usually eight to ten times higher than of the term policy, since the former ensures that a policyholder’s family receives support when they need it the most.
Features of Permanent Life Insurance
Permanent life insurance is the simplest form of life insurance. Some of its basic features are:
Has a cash component: Part of the premium in this policy is segregated and placed in a savings component, called the “cash component” of the policy. This component is then invested by insurance companies. The insurance companies then share the proceeds of the investment with policyholders in the form of dividends or interests.
Premiums can be consistent or flexible: The premium can remain consistent throughout the policy period or may be made flexible to suit a policyholder’s financial needs. Some types of policies also allow people the flexibility of the time when the payment becomes due.
Cash value can be surrendered in total or in part for cash. This value can then be converted into an annuity.
Types of Permanent Life Insurance
Permanent life insurance is of three types:
Whole life: Also known as cash surrender life insurance, this policy offers guaranteed payback, which would include face value of the policy and cash accumulated over a period of time. Moreover, a consistent premium is ensured.
Universal life: In this policy, consumers have the flexibility to pay the premium in any amount and at any time. This flexibility is, however, subject to minimum or maximum amounts specified by the insurance company. People also have the freedom to withdraw cash from the policy, without paying any interest on the loan.
Endowment: In this policy, the death benefits and cash value vary with the performance of the investment portfolio. People can voice their opinion on their preferred investment vehicle, and bear the risk in case the investment goes into losses.
Conditions When Permanent Life Insurance Expires
The following are the two circumstances due to which a permanent life insurance policy becomes invalid:
When a policyholder does not pay the premium.
When a policyholder asks for the policy to be canceled.