Permanent Life Insurance: What to Know
When it comes to financial planning, one of the most important aspects to consider is life insurance. It provides a sense of security for your loved ones and can alleviate financial burdens in the event of an unexpected tragedy. There are different types of life insurance, but one that is often overlooked is Permanent Life Insurance. We have answered a few questions below about Permanent Life Insurance and highlighted its many benefits.
What is Permanent Life Insurance?
Permanent Life Insurance is a type of life insurance that provides coverage for an individual's entire lifetime, as long as the premiums are paid. It differs from Term Life Insurance, which provides coverage for a specified term, such as 10, 20, or 30 years. Permanent Life Insurance is also known as Whole Life Insurance, Universal Life Insurance or Variable Life Insurance.
In Permanent Life Insurance, a portion of the premium paid by the policyholder is allocated towards an investment account, which accumulates over time. As the investment account grows, it can be used to pay the premiums, withdraw funds, or enhance the policy's death benefit.
Do I Need Permanent Life Insurance?
If you have a spouse, children, or dependents who rely on your income or support, Permanent Life Insurance can provide them with financial security in the event of your death. It can also be beneficial if you have accumulated wealth or assets that you want to pass on to your heirs without them being subject to estate taxes.
Permanent Life Insurance is not recommended for everyone, particularly those who are younger and do not have dependents or significant assets. In this case, Term Life Insurance may be a more suitable option.
Can I Convert My Term Policy to Permanent Coverage?
Many insurance companies offer the option to convert a Term Life Insurance policy to Permanent Life Insurance. This is typically allowed within a specific period and the policyholder will need to go through an underwriting process again. Converting to Permanent Life Insurance gives the policyholder the benefit of lifetime coverage and, in some cases, can provide additional investment options.
Are There Any Tax Benefits with A Permanent Life Insurance Policy?
Yes, there are tax benefits associated with Permanent Life Insurance policies. The investment account within the policy grows on a tax-deferred basis, meaning that the policyholder is not required to pay taxes on the investment gains until they withdraw the funds. Additionally, the death benefit of a Permanent Life Insurance policy is paid to beneficiaries tax-free. This can provide a significant advantage when it comes to estate planning.
When it comes to Term Life Insurance policies, they do not usually provide any tax benefits. Since they are typically used as a short-term solution, the lack of tax benefits is often outweighed by their low premiums.