Types of Permanent Insurance

"Permanent insurance" is really a catchall phrase for a wide variety of life insurance products that contain the cash-value feature. Within this class of life insurance, there are a multitude of different products. Here we list the most common ones.

Whole life or ordinary life.

This the most common type of permanent insurance. It provides you with the certainty of a guaranteed amount of death benefit and a guaranteed rate of return on your cash values. And you'll have a level premium that is guaranteed to never increase for life.

Another valuable benefit of a participating whole life insurance policy is the opportunity to earn dividends. While your policy's guarantees provide you with a minimum death benefit and cash value, dividends give you the opportunity to receive an enhanced death benefit and cash value growth. Dividends are a way for the company to share part of its favorable results with policyholders. When you purchase a participating policy, it is expected that you will receive dividends after the second policy year - but they are not guaranteed. Dividends, if left in the policy, can provide an offset (and more) to the eroding effects of inflation on your coverage amount.

Universal life

This type of insurance allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You also can reduce or increase the death benefit more easily than under a traditional whole life policy. With universal life, you get the certainty of a guaranteed minimum amount of death benefit, as long as premiums are sufficient to sustain that death benefit. Any guarantee relies on the claims paying ability of the issuing insurance company. As such, do your homework and select a financially sound company. Most universal life policies will also provide a guaranteed rate of return on your cash values, with one important exception. It is possible that you will not accumulate any cash value if any, or all, of the following circumstances occur: administrative expenses increase, mortality assumptions are changed, the insurance company's investment portfolio underperforms, or premium payments are insufficient.

Variable Universal Life

This type of insurance is similar to universal life. It is a flexible premium, permanent life insurance policy that allows you to have premium dollars allocated to a variety of investment options, including a fixed account. The policy generally provides income tax-free death benefit, has a cash value that grows tax-deferred, and is accessible through policy loans and/or withdrawals. Note that loans and withdrawals will reduce the death benefit by the outstanding loan amount plus any interest. The policy allows for increase or decrease of the policy coverage and premium changes to the life insurance benefit option. Some companies also give you the option to guarantee the death benefit with the Guaranteed Minimum Death Benefit Rider. Overall, variable universal life can be a good option for people who want to combine life insurance with a higher potential for investment return at a higher risk, of course. For more complete information, be sure to always request the appropriate product and fund prospectuses as they contain information you need to consider such as the investment objectives, risks, and charges and expenses of the investment.

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