Permanent life insurance provides lifetime insurance protection (does not expire), but the premiums must be paid on time. Most permanent policies offer a savings or investment component combined with the insurance coverage. This component, in turn, causes premiums to be higher than those of term insurance. The investment may offer a fixed interest rate or may be in the form of money market securities, bonds or mutual funds. This savings portion of the policy allows the policy owner to build a cash value within the policy which can be borrowed or distributed at some time in the future.
The characteristics of Permanent Life Insurance are: permanent insurance protection, it is more expensive to own; it builds cash value, loans are permitted against the policy; it has favorable tax treatment of policy earnings and it has
level premiums.
There are three basic types of permanent insurance: whole life, variable life and universal life. The two most common are whole life and universal life. Whole life insurance provides lifetime protection, for which you pay a predetermined premium. Cash values usually have a minimum guaranteed rate of interest and the death benefit is a fixed amount. Whole life insurance is the most expensive life-insurance product available. "Universal life insurance separates the investment and the death benefit portions. The investment choices available usually include some type of equity investments, which may make your cash value accumulate quicker. As the you can usually change your premiums and death benefits to suit your current budget".
Final Tips
• Consider buying a "break point" level of insurance coverage - better premium rates are given at coverage levels of $100,000, $250,000, $500,000 and $1,000,000.
• Make sure you obtain an illustration for the policy that you have chosen. If the insurer will not provide you with one, look for another insurance company.
• Always shop for a level-premium policy. Nobody likes a surprise increase in their premium payments! So, before you buy term or permanent insurance make sure your illustration shows that your premium payment is guaranteed not to increase over the duration of your coverage.
• Don't be sold on permanent insurance for the investment or cash-value feature. For the first two to 10 years, your premiums are paying the agent's commission anyways. Most policies don't start to build respectable cash value until their 12th year, so ask yourself if the feature is really worth it.
• Determine your desired duration of coverage so that you purchase the correct type of policy and keep your premium payments affordable. If you only need insurance for 10 years, then buy term. Also, check out multiple-quality insurance companies for their rates.
• Don't be taken with riders. A very few number of policies ever pay under these riders, so avoid things like the accidental death and waiver of premium riders since they will only jack up your premiums.
• For 24 hours before your medical exam, keep sugar and caffeine out of your system. It's best to schedule your exam early in the morning, and don't consume anything but water for at least eight hours beforehand.
• If your premiums are much too high due to medical reasons or you are denied coverage, check if a group plan is available through your company. These group plans require no medical exam or physical.
When seeking insurance, don't rush into buying expensive permanent life insurance before considering if term life insurance sufficiently meets your needs. Unfortunately, in many cases the fees charged for policies with investment features far outweigh the benefits. When you purchase life insurance, you're betting that you'll live, but also securing peace of mind in case you're wrong. Don't leave your family unprotected in the sudden event of your death - after all, they are your most important assets.
By: Danny Wirken -
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