What is Permanent Life Insurance?

Permanent life insurance combines the basic protection benefits of the term life insurance and living benefits made possible by the build-up of cash value. Part of the premium paid goes to build up the cash value. As long as premiums are paid, the cash value in a permanent life insurance policy will increase. The insured can receive the face amount of the policy if still alive at the of endowment or policy maturity.

The face amount of any life insurance policy is the value of money the company promises to pay as a death benefit should the insured dies while the policy is in force.

Types of Permanent Life Insurance

1. Whole life insurance. This is considered as the most basic form of permanent life insurance. Almost every other permanent life insurance contract is patterned to the whole life insurance policy. Whole life insurance is classified into two types:

  • Ordinary Life. Premium payment is distributed through-out the entire lifetime of the insured or until age 100.
  • Limited Pay Life. Premium payment is limited to a specified premium paying period.

2. Endowment. Endowment provides insurance protection to the time of endowment then protection ceases with the termination of the policy. This is ideal for those who want their life insurance cash valuse to grow very rapidly to build a fund that will be available at a certain time for a definite purpose, i.e. retirement fund or educational fund, coupled with protection in the form of a death benefit. Three kinds of endowment:

  • Regular Endowment. Premiums are paid until the end of a specified period at the same time endows at the end of the specified period.
  • Limited Endowment. Endows at the end of a specified period while premium paying period ends before the end of the specified period.
  • Anticipated Endowment. A portion of the face amount is received before the maturiy date of the endowment.

3. Universal Life Insurance. This is a form of permanent life insurance that is characterized by its flexible premiums, face amounts and its unbundling of the pricing factors.

4. Variable Life Insurance. A life insurance product becomes variable of unit linked when the policy value at any time varies according to the value of the underlying investment funds at that time. This means that the policy value is linked to the investment funds, so that the fund’s investment performance is directly reflected in the policy value.

4 comments

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  • Bas

    What happens with your insurance and paid premiums if the economy crashes and the insurance firm goes bankrupt?

  • Byron Udell

    In response to Bas’s comment. If there is concern about the ability of ANY insurance company to pay claims, every State insurance commissioner has the authority to essentially merge the assets of any troubled insurer through a takeover by more solvent insurers. This method has been used successfully and repeatedly to prevent the default of even one payment of a death claim in over a hundred years in the United States and to make sure that every in-force policy is honored based on the original terms and conditions.

  • Dorthea Casagranda

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