What is permanent life insurance?
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Asked July 6, 2010
"Permanent life" insurance is a phrase that can be used interchangeably with "whole life" insurance. It differs from term life insurance because there is no date expiration on the policy at which time the policy defaults to the insurance company. With term insurance, the policy is only in effect for the length, called a term, of the policy, and that policy becomes progressively more expensive with successive renewals.
Permanent life insurance, on the other hand, will not expire throughout the life of the insured party as long as the policy is kept up to date. This type of policy is usually a little more expensive than a term policy, but it has a guaranteed payout, and offers the policyholder options such as borrowing against the policy or establishing an account that allows the policy to pay its own premiums. Even more options are available through variations on the permanent life policy, such as variable whole life or universal whole life, both of which allow the policyholder to invest the premiums and equity in various mutual funds, bonds, or stocks. These forms of permanent life insurance have the potential to become extremely high yield, but they can also waste to nothing.
Permanent life insurance is usually applied to different purposes than term coverage. For instance, a term life policy would be a good idea to make sure that the home mortgage would be paid off in the event of your death, but would not be necessary beyond the length of the mortgage. Whole life, or permanent life, can be used to make sure that all costs associated with your death are paid, and provide support for your family even after you have passed. Even more importantly, a permanent life insurance has an accrued cash value, so that a long life offers greater returns on the policy.
Answered July 6, 2010 by Anonymous