Fidelity Life: 4 Things to Know About Permanent Life Insurance

Permanent life insurance policies can offer a way for people to provide financial safety nets for their loved ones if they pass away. But keep in mind that these policies are significant investments, so understanding how they work is key to deciding which one is right for the policyholder and their loved ones. With that in mind, here are four things prospective life insurance customers should know about permanent life insurance to decide if this type of plan is right for them.

1. Get coverage that lasts a lifetime

One of the most prominent advantages of permanent life insurance is that it lasts for the policyholder's entire life. Policyholders that want to ensure their loved ones are financially secure when they die could benefit a lot from this type of policy.

2. Pay fixed premiums

Many permanent life insurance premiums generally remain the same once a policyholder gets a plan. This means a young, healthy policyholder could lock in a low rate early in life. As they age or run into health issues, they won't have to worry about premiums increasing. An older adult that is currently healthy or on a fixed income can also qualify for affordable rates that will stay the same as time goes on. 

3. Grow cash value

A portion of the premiums policyholders pay go toward the death benefit in a permanent life insurance policy. The other portion contributes to the policy's cash value, a tax-deferred account that grows at a specified interest rate. 

Once the cash value reaches a specific size, policyholders can borrow against it at a low rate without meeting any requirements or qualifications. They can pay back the principal plus interest whenever they'd like, but the policy will lapse if the outstanding principal and interest exceed the remaining cash value. If the policyholder dies with an outstanding balance, that balance is deducted from the death benefit.

Lastly, if the policyholder surrenders the policy, they can receive the accumulated cash value. But they may pay a surrender charge that can offset the amount they'll receive.

4. Choose from several types of plans

Several types of permanent life insurance policies exist. Here are some of the most common plans:

Whole life insurance

Whole life insurance is the most common type of permanent policy. These plans usually come with fixed premiums and death benefits, and the cash value grows at a guaranteed rate of return.

Universal life insurance

Universal life policies may allow policyholders to adjust items within the policy. For instance, the death benefit may be adjustable. These policies may also let policyholders pay premiums with a sufficient cash value.

Variable universal life insurance

Variable universal insurance policies let policyholders potentially grow their cash value by offering numerous investment options. These policies may also let the policyholder adjust their premiums or death benefit.

Indexed universal life insurance

Indexed universal life insurance policies are similar to variable universal policies in that they allow for great potential growth by pairing the policy with an index. The cash value doesn't grow as much as it does with a variable life policy, but indexed life insurance often also comes with a minimum interest rate guarantee to protect against losses.

The bottom line

Permanent life insurance can be an excellent financial tool for the right person. It lasts for a lifetime and usually comes with fixed premiums, allowing policyholders to guarantee coverage for loved ones at good rates if they get the policy at a younger age. Plus, the cash value component makes permanent life insurance a viable way for people to grow their wealth.

There are multiple types of permanent life insurance policies that each come with their own unique features and benefits. Policyholders should take their time to research their options to lock in a plan that fits their needs and goals.

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