Permanent Life Insurance
Permanent Life Insurance is an umbrella term for life insurance plans that do not expire. Most permanent life insurance policies have a feature known as "cash value" or "cash surrender value." This feature, not found in most term policies, provides you with some options. The main advantage of a permanent life insurance is the policy accumulates a cash value against which you can borrow. Loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.
Difference between Term Insurance and Permanent Insurance:
• Term Insurance provides coverage for a specific period of time whereas Permanent life Insurance provides coverage throughout the lifetime of insured provided policy is in-force, i.e. active.
• Term Insurance does not provide cash value whereas permanent does.
Disadvantages of Permanent Life Insurance
• Required premium levels do not buy enough protection components for you in life insurance.
• Permanent life insurance are more costly than term insurance
The various types of permanent life insurance policies are as follows:
1. Whole Life Insurance: It is the most common form of permanent life insurance. Whole life insurance risk covers the death of the insured, whenever it may happen. It means that there is no fixed term under whole life insurance. Most policies provide a dividend to the policy holder which helps with retirement. Whole life policies provide insurance until the death of the insured person. Whole life policies are classified into.
Pure Whole Life Insurance: where premiums are payable continuously throughout the life of the insured till death. Risk coverage is for the entire duration of life and the life insured amount is paid on the happening of the death of the insured at any time.
Limited Payment Whole life Insurance: where premiums are paid for a limited and shorter period and the option of the insured or till death if earlier. Risk coverage is however throughout the life of the insured.
Universal Life Insurance: A permanent life insurance policy that lets you customize your coverage and premiums as per your needs Universal life insurance provides more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings components of the policy. Premiums are paid into your policy's account value (after a premium expense charge), where it earns interest. Every month, various deductions, such as a charge for insurance protection, are then made from the account value. You have the ability to take loans or make withdrawals from the account value for your personal needs. Loans accrue interest and unpaid loans plus interest and withdrawals will reduce the death benefit and cash value. The policy continues as long as the cash value is sufficient to cover the various deductions each month.
2. Limited Pay Policy: A policy where you have to pay a fixed number of premiums for a specific numbers of years or till you reach a specific age.
3. Endowment Policy: Endowment policies cover the insured for a specified period. Thus, the insured has the option to insure himself till he wishes to be insured. Upon the death of the insured (during the term of the policy), the nominee receives the sum assured plus the bonus, if any. Bonus is paid for the number of years the policy was in force. Upon maturity, the insured receives the sum assured plus the bonus for the term of the policy, if any. Thereafter, the insured is not covered by the policy. Endowment policies are usually more expensive in comparison to whole life policies. Endowment policies are broadly classified into two types - Endowment - Without profit and Endowment - With profit.
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