Life is full of uncertainties and the unpredictable future makes everyone to think of Life insurance Policies offered by many companies. Varieties of policies available accordance with the ability and convenient of the insured, so one can choose as per his choice. Permanent life insurance is a form of life insurance, where the policy is for the life of the insured, the payout is assured at the end of the policy and the policy accrues cash value, .and it provides long term protection.. As long as you pay the premiums, the death benefit will be paid. Since these policies are designed and priced for you to keep over a long period of time it will not suit for those who don’t intend to keep the policy for the long term. In such a situation it is better to consider term insurance policy.
Permanent policies are known by a variety of names: whole, ordinary, universal, adjustable, and variable life. Most have a feature known as cash value or cash-surrender value
Whole life insurance was the most common type of permanent life insurance, offered originally in which the premiums generally remain constant over the life of the policy and must be paid periodically. This offered consumers guaranteed cash value accumulation and a consistent premium. . Consumers later wanted more flexibility which was offered in the name of Universal life insurance.
Universal life insurance is the adjustable one which allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums or maximums. You also can reduce or increase the death benefit more easily than under a traditional whole life policy. (to increase your death benefit, the insurance company usually requires you to furnish satisfactory evidence of your continued good health.) . Universal life policies also allowed consumers to permanently withdraw cash from the policy without the interest associated with the loan provisions and it retained the fixed investment performance of whole life policies
Variable life insurance follows the mold of whole or universal life, but it shifts the investment risk to the consumer along with the potential for greater returns. You can allocate your premiums among a variety of investments offering different degrees of risk and reward -- stocks, bonds, combinations of both, or accounts that guarantee interest and principal. You will receive a prospectus in conjunction with the sale of this product.
The cash value of a variable life policy is not guaranteed and the policyholder bears the risk. However, by choosing among the available fund options, you can allocate assets to meet your objectives and risk tolerance. Good investment performance will lead to higher cash values and death benefits. If the specified investments perform poorly, cash values and benefits will drop
Variable universal life insurance policy combines this with the flexibility in premium structure of universal life to create the most free form option for consumers to manage their own money (at their own risk). Variable universal life insurance policies are considered more favorable to other permanent life insurance alternatives due to the favorable tax treatment of all permanent life insurance policies and their potential for greater returns than other permanent life insurance products.
One can consider the permanent life insurance for the following benefits.
- As long as the premiums are paid, protection is guaranteed for life.
- Premium costs can be fixed or flexible to meet personal financial needs.
- Since you pay premiums for an indefinite period irrespective of the fact they exceed the amount to be distributed to your dependents in case of death. Such surplus will be deposited by the company in a separate account. They will yield higher returns if the company performs well. A share of the profits is periodically dispatched to you
- A permanent policy accumulates a cash value against which you can borrow. Loans must be paid back with interest or your beneficiaries will receive a reduced death benefit. Newer plans allow you to pay a minimum premium to guarantee death benefit, thus minimizing outlay.
- .If the insurer decides to retain the profits made from your investment with him then you are not required to pay income tax for that amount. There is a possibility like, when you withdraw certain amount of money within the given limit you need not pay income tax for that amount. But when you deposit money in the bank you have to pay income tax irrespective of the fact you utilize it or not. It is advisable not to choose permanent life insurance if your motive is solely investments and the tax exemptions. Insuch a case look for some other financial instruments to save tax.
- Cash value of a permanent life insurance policy can be surrendered, in total or in part, for cash or converted into an annuity.
- A provision or "rider" can be added to a permanent life insurance policy that gives you the option to purchase additional permanent insurance without taking a medical exam or having to furnish evidence of insurability
One should aware of the drawbacks also before choosing the policy.
- Required premium levels may make it hard to buy enough protection.
- Permanent life insurance may be more costly than term insurance if you don't keep it long enough. Term insurance is referred to as pure death benefit with no cash accumulation vehicle tied to it, term premiums remain 8 to 10 times less expensive than permanent premiums for the same coverage.
So most people are attracted by the term insurance for the low cost and the ability to invest the difference in separate financial products.
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