Permanent Life Insurance: Definition, Types, and Difference from Term Life

Life insurance is a way to help the people you care about financially after you’re gone. There are two main types: term life and permanent life insurance. Think of term life insurance like renting protection – it lasts for a set number of years, maybe 10, 20, or 30. Permanent life insurance policies are different. They cover you for your whole life, no matter how old you get, as long as you keep paying the payments.

These permanent life insurance policies, like whole life insurance, have a neat extra part: they build up cash value. A piece of the money you pay for your policy can go into a special account that grows over time. You usually don’t pay taxes on this growth right away. This growing cash can become a big help later. You could borrow from it if you need money, use it to help pay for the policy itself, or even take it out as cash to help you enjoy retirement.

What Exactly Is Permanent Life Insurance?

So, what is permanent life insurance? It’s a type of life insurance that gives you coverage for your entire life. Yes, it usually costs more money than term insurance. But permanent life insurance policies aren’t just about giving money to your family when you pass away; they also have a savings part that earns money over time without you paying taxes on that growth until you take it out.

Kinds of Permanent Life Insurance

There are a few kinds of permanent life insurance. The two most common ones are whole life and universal life. With whole life insurance, the money in your savings part grows at a rate that’s set and won’t change.Universal life insurance also has savings and a death benefit, but it’s more flexible with the payments you make. The money you earn on the savings part with universal life can go up or down based on how the market is doing. There are also types called variable life and variable universal life. These let you have more choices, like putting the cash value into investments like mutual funds.

Once you think you’ve found the right permanent life insurance policy for you, it’s smart to look into the companies that offer it. Make sure you choose a good company for your permanent life insurance needs.

Understanding Permanent Life Insurance Better

Remember how term life only covers you for a set time? Permanent life insurance covers you for your whole life, as long as you keep up with the payments. The money you pay for permanent life insurance helps cover the death benefit and also builds up that cash value we talked about.You, as the owner of the permanent life insurance policy, can use that cash value if you need it. You could take out a loan from it or even take out cash directly. This could help pay for things like doctor bills or going to college. The insurance company will ask for interest if you borrow from the cash value. Be careful though: if your loan and the interest you owe get bigger than the cash value, your permanent life insurance policy could stop working.

Good Tax Stuff About Permanent Life Insurance

One nice thing about permanent life insurance policies is that they have some tax benefits. The cash value usually grows without you having to pay taxes on the money it earns right away. This is called tax-deferred growth. You only pay taxes on the money you earn if you take it out. Also, you can often take some money out of your permanent life insurance policy without paying any taxes on it at all. Usually, if you take out less than or equal to the total amount you’ve paid into the policy, it’s tax-free. Just know that if you take cash out, either by taking it out or borrowing it, it will mean less money goes to your loved ones when you pass away.

Permanent Life Insurance: How It’s Different from Term Life

People need different kinds of insurance at different times in their lives. Both whole life (a type of permanent life insurance) and term life give a death benefit if you keep paying. Term life insurance is popular because it costs less money each month. But term coverage usually runs out long before you do. You can usually keep your term coverage after the first time period ends, but it will cost more money.

Young families often get term insurance. They use it until they pay off big bills and save enough money that they don’t need as much life insurance. But others might like the idea of having coverage that lasts forever and the chance to save money with a new permanent policy.

Because of this, many term life plans let you change them into a permanent policy later on. Often, you don’t even need to get a medical check-up or meet other rules to do this.] This could be really good if you have health problems that would make getting a new policy very expensive. It’s also helpful if you have health issues that mean you might need to use the savings part of a permanent life insurance policy later to help pay for ongoing costs.

Yes, the monthly bills for permanent life insurance are a lot higher than for term life. But people who choose permanent life insurance policies often have more income by then and can handle the higher cost. Since you can also save money with these policies, people use them as a smart way to save money without paying lots of taxes right away. This can help take care of family members who will always rely on them or help plan for passing on money and property later.

Good and Bad Things About Permanent Life Insurance

Like anything, there are good points and not-so-good points about getting permanent life insurance. If you can pay the higher monthly costs, permanent life insurance lets you give money to your loved ones when you pass away without an end date like term life has. A permanent life insurance policy also lets you build up savings that grow without immediate taxes. You can even borrow or take out that money while you’re alive.

The not-so-good parts of permanent life insurance policies are the higher costs, the chance you might not be able to keep paying, and that using the cash value means less money for your family later.

How Much Does Permanent Life Insurance Cost?

How much you pay for permanent life insurance depends on many things. Things like how old you are, if you smoke, how healthy you are, and how much coverage you want all make a difference. But usually, permanent life insurance costs a lot more than term life insurance. This is because it gives you more benefits and can be used in more ways than term life. Also, whole life insurance often costs more than universal life insurance. The exact cost for your permanent life insurance policy will be different.

Cool Tax Stuff About Permanent Life Insurance

Permanent life insurance policies have some great tax benefits that can help you save money.

• Savings grow without taxes for a while: The money in the cash value part of your permanent life insurance grows, and you don’t pay taxes on that growth until you take it out. This helps your savings grow faster!
• Family gets money tax-free: When your family gets the death benefit from your permanent life insurance policy, they usually don’t have to pay income tax on it. This means they get all the money to help them out.
• Borrow money smartly with taxes: You can borrow money from the cash value in your permanent life insurance. These loans can be a smart way to get money for different needs without big tax problems.
• Take out money tax-free sometimes: You can take money out of your permanent life insurance policy without paying taxes on it, as long as you don’t take out more than you’ve paid in payments. This can be a helpful source of money later, maybe when you’re retired.

Who Might Like Permanent Life Insurance?

Permanent life insurance can be a good choice if you want coverage that lasts your whole life and that savings part. Here are some people who might find permanent life insurance a good fit:

• Families with young kids: Permanent life insurance can help pay for your kids’ school and living costs if something happens to a parent. It helps your family stay steady financially when they need it most.
• People who own businesses: Permanent life insurance can help business owners with things like plans for what happens if a partner leaves or protecting important employees. It helps keep the business going and healthy with money.
• People with a lot of money: Permanent life insurance can help pay taxes on what you leave behind and be a smart tax way to pass down money. It helps make sure your money and things are kept safe and go where you want them to.
• Families with someone who has special needs: Permanent life insurance can give money to help care for someone with special needs. It helps make sure they have money to live on even if you can’t be there anymore.

Conclusion

So, if you’re looking for life insurance that lasts forever and helps you save money along the way, permanent life insurance might be just right for you. It costs more than term life, but the lifelong protection and growing cash value can offer peace of mind and financial help for your whole life.

FAQs About Permanent Life Insurance