Who Should Get Permanent Life Insurance?

iQuanti: Life insurance is an important part of long-term financial planning for many, since it helps protect your loved ones in case you pass away. When looking at your policy options, you may come across permanent life insurance and wonder if it's a good fit for you. Let's dive deeper into how permanent life insurance works and review a few situations where one of these policies could make sense.

How does permanent life insurance work?

Permanent life insurance is a type of life insurance policy that lasts from the moment of your purchase until you pass away, as long as you continue to pay your premiums. This means that your beneficiaries can receive the death benefit no matter when you pass away, since the policy doesn't expire. 

Part of each premium covers your insurance payment, but another part goes toward building your cash value, a unique feature in permanent policies. The cash value accumulates on a tax-deferred basis. You can borrow against it when needed at a small interest rate, and you don't need to fully pay it back unless your loan and unpaid interest exceeds your cash value amount. 

You may also be able to use your cash value to cover your premiums once you build it up enough. Additionally, policyholders can surrender the policy to receive the cash value but may have to pay a fee or penalty.

When should you consider permanent life insurance?

Permanent policies are often more expensive than term policies, but may be worth it if you're in one of the following situations:

You need lifelong coverage

If you need lifelong coverage, then a permanent life insurance policy is likely your best choice. You may simply feel more secure knowing your family is covered regardless of when you die, unlike with term life insurance policies - which may expire before you need them.

You want to grow your wealth

Permanent life insurance policies allow you to grow cash value on a tax-deferred basis, which means you won't have to pay taxes on the money you gain from the policy. This can be a great way for policyholders to accumulate wealth over time.

You want to leave a legacy

Permanent life insurance policies allow you to add to the assets your heirs receive when you die. You can do this in a couple of ways:

• You can continue paying premiums for the policy until you die, providing your beneficiaries with the death benefit. This can be a significant financial boost, as death benefit proceeds are generally tax-free.
• You can wait until you're retired, your home is paid off, and you don't have to provide for your kids. At this point, you could consider surrendering your policy, investing your cash value payout, and passing those assets down with the rest of your estate.

The bottom line

When deciding whether permanent life insurance is right for you, consider the benefits and your coverage needs. People who prefer the peace of mind that comes with lifetime coverage and want to leave a larger inheritance to their heirs might opt for a permanent policy. On the other hand, those that want to save money and have already met their goals for leaving a legacy may opt for a term policy. 

Make sure you weigh your own circumstances as you shop for a life insurance policy. And when in doubt, consult with a financial advisor to get help in choosing the right plan for your needs.