Permanent life insurance, also known as Whole Life, not only provides protection throughout your life but also serves as a profitable investment.
Whole or permanent life insurance is classified into four types, according to the Life and Health Insurance Foundation for Education: traditional whole life, universal life, variable life, and universal variable life.
Traditional whole-life policies have a fixed death benefit and premium for the duration of the policy. To maintain a level premium, the premium charged to the policyholder is initially higher.
This is because the extra money received by the insurance company is invested in a pool fund to supplement the level premium in order to afford the cost of life insurance as you age. Because your chances of dying increase as you get older.
This method of overpayment has some limitations. When the cash value reaches a certain amount, the money is made available to the policyholder for borrowing.
Universal Life Policy (UL)
A universal life policy allows you to adjust the death benefit amount to meet changing needs. The policy also allows for greater payment flexibility when it comes to premiums.
The cash value account in universal life is linked to the money market interest rate. After money has accumulated in the account, the policyholder can use the cash value to determine how much premium (above the minimum payment) to pay and when.
Variable Lifespan (VL)
This type is linked to an investment portfolio (stocks, bonds, money market mutual funds) that builds cash value based on the performance of the stock market.
In general, a high return on cash value is not guaranteed, and the death benefit is not guaranteed in some policies. This is why it is best to find a policy that guarantees, at the very least, that the death benefit will be paid regardless of how well the cash value performs.
Variable-universal Life (VUL)
It is a variable life policy that combines the features of a universal policy and a variable life policy. It includes an investment component as well as the ability to adjust the death benefit and premium amount.
According to the Insurance Information Institute (III), the amount you’ll likely pay for a policy is determined by the cost per $1,000 of death coverage. A whole life policy also has a higher premium than a term life policy. It can be five to ten times higher in some cases.
When purchasing a cash value policy, such as variable life or variable universal life, MetLife financial planner Tony Franks advises customers to conduct extensive research on the companies from which they intend to purchase a policy.
“You should consider the companies’ financial strength as well as their track record of service,” Franks advised. “Because these products can be complicated, you should speak with an agent who understands how they work.”