Do you want to leave a legacy for your spouse, children or grandchildren? If so, permanent life insurance may be the right financial tool for you. As the name implies, permanent life insurance provides coverage for life, assuming you meet the required premiums each year. It also accumulates tax-deferred cash value, which you may be able to use as a supplemental reserve in the future.
If you’ve never considered permanent insurance before, you may be overwhelmed by the choices available. There are permanent policies designed to meet a wide range of needs and budgets. Not all policies are right for all situations.
Below are descriptions of the three most common types of permanent policies. Before you commit to a policy, do your due diligence and make sure it’s right for your objectives. A financial professional can also help you find the right policy for you.
Whole life is a type of permanent policy in which your death benefit and premium amount remain constant for the duration of the coverage. As long as you make the required premium payments, the policy stays in force and you are covered for life.
In each premium payment, a portion goes toward the cost of insurance, and another portion goes into a cash value account. The insurance company then pays annual dividends into the cash value, and those funds accumulate on a tax-deferred basis. The dividends may fluctuate from year to year, so be sure to look at the insurer’s dividend history. However, your cash value is not exposed to market risk and will never decrease.
Universal life insurance is similar to whole life, but there are a few important differences. Like whole life, universal life has a set premium and death benefit, and it also has a tax-deferred cash value account with no downside risk.
One big difference, though, is that you have the power to adjust your premium or death benefit in a universal life policy. If you’ve accumulated enough cash value, you also may be able to skip premium payments in certain years. That flexibility could be helpful as your needs and goals change over time.
Also, universal life policies offer interest-based accumulation rather than dividend payments. Your interest rate could fluctuate over time. The policy will offer a guaranteed* minimum interest rate, however, so you’ll always know the least amount of interest you will earn in any given year.
Variable Universal Life
Variable universal life (VUL) offers death benefit protection but also unique growth opportunity. Your policy has a death benefit and premium, similar to universal and whole life policies. However, you have the option to invest your cash value in subaccounts, which are similar to mutual funds.
Because they’re invested in financial markets, VUL subaccounts often allow for greater growth potential than is available in whole life or universal life policies. However, return and risk often go hand in hand. Your subaccount values could decrease, and you may have to make additional premium payments to support the policy.
Ready to find the right permanent life insurance policy for your goals? Let’s talk about it. Contact us today at Heritage Financial North. We can help you analyze your needs and choose the right policy. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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