What is Permanent Life Insurance?
By definition, permanent insurance refers to any life insurance policy that lasts your entire life. By contrast, a term insurance policy only lasts for a designated term length, whether it be 10, 20, or 30 years. Many insurance companies offer both types, so you can choose what’s right for you. Additionally, you can choose the amount of coverage appropriate for your needs or add on other insurance products, such as a rider, to customize your policy.
The two most popular forms of permanent life insurance are whole life insurance and universal life insurance. Permanent life insurance policies offer both a death benefit and a cash value component. The death benefit is the money paid out to your designated beneficiaries. Your designated beneficiaries are the loved ones in your life that rely on you for financial assistance in some way. These can be family members such as a spouse or sibling, or someone such as a business partner. The death benefit can cover outstanding household debts, final expenses, or even estate taxes after your passing.
All life insurance policies pay out a death benefit in the case of your passing. However, a distinguishing factor with permanent life insurance policies is the cash value—or savings—component. An attractive aspect of the cash value component is that it grows tax-free, meaning you don’t pay income taxes on that money until you withdraw it.
Over time, as you pay your life insurance premium, the policy’s cash value component will grow. It is important to note, though, that you usually have to wait a set period of time after you buy the policy before you can borrow against the savings portion. But, with time, you can theoretically borrow against these funds or use them to cover your premium. Subsequently, if you cancel your policy, you will get to keep this cash value. Be warned: doing so may come with hefty fees.