Plymouth Insurance Agent | Permanent Life Insurance Basics

When it comes to life insurance, there’s a couple of different options you have and today Envizion Insurance, your Plymouth insurance agent is going to talk about permanent life insurance. One thing to recognize right away is that unlike term life insurance where you have a policy with a certain death benefit that lasts for a certain number of years, permanent life insurance policies are meant to provide life insurance that lasts for someone’s entire lifetime. Generally you’ll see policies that last and pay out a death benefit at age 100, and also some will pay at age 120 so that is the expiration of the policy itself.

The unique feature of permanent life insurance that is different from term life insurance is the way that the policy has a savings portion to it in addition to a death benefit. So when you pay in your premium, a portion of the premium pays for what the death benefit would be if you were to pass away. However, the other portion that you pay in will go towards, uh, a savings account, which will accumulate into what is called cash value. The cash value can be used at a later time, once it’s accumulated and can be used for any sort of expense that may come up that is, um, not planned for, can also be used to, you know, take out for a down payment of a home or something of that sort as well. So it does have some flexibility as far as having a secondary sort of benefit to it with the accumulation of a cash value.

And that is something that’s unique about permanent life insurance opposed to term life insurance. The cash value can be used for anything such as unexpected payments that you have to make unexpected, you know, damages to a car say, but it can also be used for education, can be used for covering medical expenses, um, for college fund. Um, or just any other use of cash that you would like to, uh, draw from the permanent life insurance policy that you have accumulated over time by paying in your premium. It’s the most common types of permanent life insurance policies is something we’ll cover now. So whole life insurance is generally the most common type of permanent life insurance that you’ll find. A life policy has a premium that will stay fixed for the duration of the policy and will have a specific death benefit that will also stay fixed for the entire duration of the policy whole life policies. 

Also it will have a guaranteed rate of return, which means that the policy is guaranteed to earn a minimum amount of interest on the money that is added to the policy. And so what that may sometimes also have incorporated in it is a payout of dividends, but it does depend on the type of whole life policy and the insurance company that you’d go with. Um, you can use the dividends then to, uh, pay the premiums so that you don’t have to pay them out of pocket, but you’re using those dividends to pay the premiums for the policy, um, or, or you can receive them as cash or leave them, um, in the policy to increase the value of the cash value on the policy itself. Whole life insurance policy is the basic type of permanent policy. And Plymouth insurance agent will get into a couple more types of permanent life insurance that are very popular on the market today. 

The first one is universal life insurance, which offers some more flexibility than a whole life insurance policy will be because it will allow you to increase your death benefit, um, or reduce the amount of premiums you pay each month once you’ve accumulated enough cash value on the policy. Um, but however you can use up your cash value by applying it to premium payments. And so if you do use up all that money when using it to pay your premiums, it can cause your policy to lapse because you may run out of the cash value and then you will not pay for your policy unintentionally, but it can happen.

The next type is variable universal life insurance. Um, the big difference here is the word variable, which means that you have a variety of different types of investment options that can help you increase the cash value of the policy. However, there is no guarantee on the rate of return. So the investment can also create losses that re can reduce the policy’s cash value and also the death benefit that is paid out on the policy. So when it comes to variable life insurance policy, um, you need to be careful on the investments but it can have a higher reward if the investments are done correctly. And also these policies do offer, um, the ability to adjust the death benefit and premium of the permanent life insurance policy with all the universal life policies. You have to also know that the premiums can fluctuate and it’s not a guaranteed premium for the entire time. The policy is in place like you see on the whole life insurance policy because of the Inter is straight changes and things like that. You may see a higher premium one month to the next because of the interest rate that is earned and so therefore it isn’t going to be a level premium throughout the term of the policy.

The last type of permanent life insurance your Plymouth insurance agent will explain is guaranteed universal life insurance. The guaranteed portion means that you’ll have the policy as long as you paid premiums. So unlike the universal policies where you may have a changing premium, your premium amount will be level throughout the entire term of the policy and as long as you pay that premium, there will be no changes to your policy and it will not lapse. So this is usually referred to as um, the most closely resembling policy to a term life insurance policy because of the way that it has that guarantee for when you pay the premium each month, there’s no way that the policy will lapse. And the policy premium will always be the same amount since the rate of interest on a guarantee universal life insurance policy is guaranteed. 

Sometimes what will happen is that you have no ability to gain cash value in the policy because the interest rate earned by the insurance company might be less than the guaranteed amount of interest. So at the end of the term, you may have no cash value at all in the plan because the rate of growth was lower than the guaranteed rate. Like you would in a whole life policy. And so that is again, why it most closely resembles a type of term life insurance policy. There is a chance there will be cash value, but there’s no guarantee on there being a cash value. That guarantee comes with you paying your premium every single month, which is established and remains the same throughout the life of the policy. 

Your Plymouth insurance agent knows there are a lot of options when it comes to permanent life insurance. And knowing your options and speaking with an agent is always a smart decision. Being aware of the different types of policies and understanding each of them so that you can make the right decision for you and your family for your life insurance needs will always be the most important part of shopping for your life insurance. The thing you will find when working with EnviZion Insurance, your Plymouth insurance agent, is that we take the time to listen to you, and use what we learn from you and your specific needs to find a life insurance plan to protect you and your family.