As we explained in our previous blog post, permanent insurance, also called whole life insurance, is life insurance intended to cover a person for an entire lifetime. The alternative is term insurance which covers someone for a specified period of time, like 10, 15 or 20 years. Today we’ll look at permanent insurance. There are three types: traditional whole life, universal life and variable life.
Traditional whole life: This type of permanent insurance offers more guarantees than the other types. The annual premium is guaranteed and the policy will contain guaranteed cash values and benefits. In many policies, dividends may also be earned, but they are typically not guaranteed. When dividends are paid, they can increase the cash value or death benefit, or they can be used to reduce premiums or be paid to the policyholder. Traditional whole life insurance is sometimes used by individuals as a conservative investment or part of a long-term savings plan.
Universal life insurance offers more flexibility. Its premium payments can vary from year to year, and when enough value has built up in the policy, premiums can be skipped without the policy lapsing. Universal life insurance has maximum guaranteed premiums, so you’ll never have to pay more than a certain amount. It also offers minimum guaranteed cash values and death benefits. Universal life policies do not pay dividends, but the cash value can accrue interest per the policy.
Variable life insurance offers fewer guarantees than traditional whole life and universal life, so the risks for this type of policy are higher. That also means that there is the greatest potential for increases in cash value when the underlying investments – usually mutual funds – perform well. A variable life policy will have a required guaranteed annual premium and a guaranteed minimum death benefit, but there are no guarantees on the cash value.
Each of these types of policies has unique characteristics and can help an individual to further his or her financial goals. However, we encourage you to consider your options carefully and to understand each policy’s provisions, guarantees and risks. The best way to do that is to work with an experienced financial planner or investment advisor, like Synergetic Finance, to ensure that the policy you choose meets your needs.
For more information, please give us a call at 206-386-5455 or email us now. We’d be happy to answer your life insurance questions and/or schedule a complimentary consultation.
To your wealth,
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance