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- Permanent life insurance policies differ from term life insurance policies in three respects: benefits, duration and price. Unlike term policies, which only provide you with a death benefit, permanent policies also include an investment aspect---a cash value that grows on top of the flat death benefit as you continue to make payments. Also, as the name implies, term insurance only covers you for a specific amount of time: You are no longer covered after this term passes, while permanent life insurance policies must cover you as long as you continue to make payments. Finally, since they offer more benefits and longer coverage, permanent life insurance policies tend to cost more than term life insurance policies.
- Whole life insurance is the most basic type of permanent life insurance. When you purchase a whole life insurance policy, you agree to make regular (usually monthly) payments into the policy of a specific amount. This amount usually does not change for the duration of the policy unless you decide to increase coverage. While the death benefit maintains a flat value regardless of time, the cash value of the policy gradually grows as time passes. If you decide to surrender the policy before you die, you will not get the death benefit, but you will receive the cash value of the policy.
- Universal life insurance is a type of permanent life insurance similar to whole life insurance, but it is more flexible. For instance, if you fail to make the required payments on your whole life insurance policy, the insurance company may simply cancel it. However, in a universal life insurance policy, payments are not fixed, and if you fail to make the minimum payments necessary to keep your death benefit in force, the insurance company will deduct the minimum from your accrued cash value. On top of this payment flexibility, universal life insurance policies also give you flexibility in the returns you get from the investment aspect of the policy. They typically guarantee you a minimum yearly return on your cash value, usually about 4 percent, and then give you more if investments perform well.
- Variable life insurance, or variable whole life insurance, is more like whole life insurance in that it requires a specific regular payment in order to keep the policy in force. However, it gets its name from the fact that, unlike whole life insurance, variable life insurance does not give a constant rate of growth for the cash value or a flat value for the death benefit. These aspects of the policy fluctuate because the insurance company lets you decide how you want it to handle the investments it makes with your money. If you make good choices, your cash value accrues faster than it would in a whole or universal life policy, and your death benefit grows. If you make poor investment choices, your cash value may actually decrease, and your death benefit may fall until it hits a specified minimum.
Permanent vs. Term
Whole Life Insurance
Universal Life Insurance
Variable Life Insurance
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