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Why
should I purchase permanent insurance?
A
permanent life policy provides lifelong insurance
protection. The policy pays a death benefit if you die
tomorrow or if you live to be a hundred. There is also a
savings element that will grow on a tax-deferred basis and
may become substantial over time. Because of the savings
element, premiums are generally higher for permanent than
for term insurance. However, the premium in a permanent
policy remains the same, while term can go up substantially
every time you renew it.
There are a number of different types of permanent insurance
policies, such as whole (ordinary) life, universal life,
variable life, and variable/universal life. In a permanent
policy, the cash value is different from its face value
amount. The face amount is the money that will be paid at
death. Cash value is the amount of money available to you.
There are a number of ways that you can use this cash
savings. For instance, you can take a loan against it or you
can surrender the policy before you die to collect the
accumulated savings.
There are unique features to a permanent policy such as:
- You can lock in premiums when you purchase the policy.
By purchasing a permanent policy, the premium will not
increase as you age or if your health status changes.
- The policy will accumulate cash savings.
Depending on the policy, you may be able to withdraw
some of the money. You also may have these options:
- Use the cash value to pay premiums. If unexpected
expenses occur, you can stop or reduce your
premiums. The cash value in the policy can be used
toward the premium payment to continue your current
insurance protection – providing there is enough
money accumulated.
- Borrow from the insurance company using the cash
value in your life insurance as collateral. Like all
loans, you will ultimately need to repay the insurer
with interest. Otherwise, the policy may lapse or
your beneficiaries will receive a reduced death
benefit. However, unlike loans from most financial
institutions, the loan is not dependent on credit
checks or other restrictions.
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