Understanding Permanent Life Insurance Policies

By: Christian Rios

Permanent Life Insurance comes in two distinct forms:

Whole Life - This type of Life Insurance policy is immune tofactors that would otherwise cause an insurance policy's premium to increase.Two factors that determine insurance premiums are mortality rate and expensecosts. As you age, your mortality cost increases and should therefore increasethe insurance premium. But with a Whole Life policy, this isn't the case. Thesame applies for an insurer's operating expenses. If an insurance company hasto increase its general staff or perhaps rent a larger office space, the costis usually passed down to policyholders. This would not be the case for WholeLife policy holders. Those who purchase a Whole Life policy are buying apermanent life insurance policy without risk. The disadvantage to a Whole Lifepolicy is if the policyholder decides to add additional coverage, he or shewill be required to purchase an additional life insurance policy.

Universal Life - This type of policy is in direct contrastto a Whole Life policy. It is flexible in nature where a Whole Life policy isnot. The two factors that determine a Universal Life insurance premium(mortality cost and expense cost) are passed directly on to the policyholder:if expense costs decrease or general interest rates rise, the policyholderbenefits by having his or her insurance premium lowered. However, the oppositeis also true: should expense costs increase or general interest rates drop,then the policyholder is subject to ever-increasing insurance premiums.Additionally, Universal Life policy holders are allowed the flexibility ofincreasing or decreasing policy limits without purchasing additional policies.Should you experience difficult times and be unable to afford the premium, youcan simply lower the limits in order to decrease your policy premium.Increasing the benefit is also possible but may require the insured to provegood health to the insurer.

Other life insurance terms you should be aware of:

Variable - Variable means the policy holder is allowed toinvest the cash value of the policy into areas such as the stock market. Thiscan be beneficial if the cash value is invested wisely and the investment isprofitable. However, if a poor investment choice results in a decreased cashvalue due to unexpected losses, the policyholder will be required to depositadditional funds to cover the cash value loss.

Cash Value Choices - Whenever a policy holder decides toterminate a permanent insurance policy early and that policy has established acash value, the policyholder has several options available: receive the fundsin cash, accept a prepaid permanent insurance for life (but at a decreaseddeath benefit), or accept a term life insurance policy for the full deathbenefit.?

Policy Loans - There is a fourth option to cash value calledPolicy Loans. The policyholder may borrow against the accrued cash value of hisor her life insurance policy. If you decide to take a loan against your cashvalue and should you die before the Policy Loan is paid back, the insurer willdeduct the unpaid loan amount from the death benefit. Although Policy Loans dohave an interest ratePsychology Articles, it is usually quite low in comparison to conventionalloans (it may be as low as 3 to 4 percent when dividend payouts are alsofactored).

Life Insurance
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