permanent or whole life insurance

Permanent Life Insurance provides coverage for the policyholder’s entire lifetime. The death benefit is guaranteed I.e. it provides guaranteed lifetime protection, as long as the premiums are paid. These policies usually have both a death benefit component and a cash value component (also known as cash surrender value). The cash value component grows over time and can be used as collateral for loans or withdrawn by the policyholder. Interest may accumulate in the savings component on a tax-deferred basis.

However, whole life insurance premiums are generally higher than term life insurance premiums.

Types of permanent life insurance

1. Whole life:
   • This is the most traditional type of permanent life insurance.
   • The cash value can be borrowed against or used to pay premiums.
   • Provides coverage for the entire lifetime of the life insured
   • Premiums remain same throughout the payment period
   • Has a set death benefit
   • Builds up a cash surrender value (CSV) over time. When applicable, the policyholder may be entitled to receive payment of that CSV minus any surrender charges if the policyholder surrenders the policy prior to the death of the insured.
2. Term-100 (also called T-100 and Term-to-100):
   • Provides coverage for the entire lifetime of the life insured for a set death benefit
   • Has relatively lower premium than whole life
   • Normally, these do not have a cash surrender value
   • Policy matures at age 100 (i.e., premium payments stop at age 100 or upon death whichever is earlier, but life insurance coverage continues until the death of the policyholder)
3. Universal life :
   • Universal life insurance is similar to whole life insurance, but it offers more flexibility such as:
     • The policyholder can adjust the premiums and death benefit as needed.
     • The policy also builds cash value, which can be used to pay premiums or withdrawn.
     • Has a basic premium and an option to deposit more than the basic amount.
     • Has a minimum death benefit with an option to increase the death benefit
     • The policyholder decides how the savings component will be invested.
   • Accumulated savings (and investments) are tax sheltered and form part of the death benefit (tax-deferred if funds are withdrawn prior to death).
   • Universal life insurance tends to be less expensive than whole life insurance.

Pros and Cons of Permanent Life Insurance

Pros:

1. Lifelong Coverage: Permanent life insurance provides coverage for the policyholder’s entire life, as long as premiums are paid.
2. Cash Value: The policy builds cash value over time, which can be borrowed against or used to pay premiums.
3. Tax Benefits: The death benefit is generally not taxable, and the cash value grows tax-deferred.
4. Estate Planning: Excellent tool to build your estate and pass it down to your loved ones, tax free

Cons:

1. Expensive: Permanent life insurance tends to be more expensive than term life insurance.
2. Complex: The various types of permanent life insurance can be complex and difficult to understand.
3. Investment Risk: Variable life insurance carries investment risk, and the policyholder assumes the risk and reward of the investments.

Is Permanent Life Insurance Right for You?

Determining if permanent life insurance is right for you depends on your individual financial situation and goals. If you need lifelong coverage (i.e. have a permanent need) and/or want to plan you estate or are looking for tax deferred investment strategies, permanent life insurance may be a good option.

If you only need coverage for a specific period, term life insurance in may be a more cost-effective choice.