Permanent life insurance allows you to provide your family with guaranteed financial support in the event of your death. But keep in mind that you must pay premiums each month to maintain the policy and avoid losing your lifetime coverage. Read on to learn more about what permanent life insurance are the bonuses and how they work.
What are permanent life insurance premiums?
Permanent life insurance premiums are the monthly fees you pay to maintain your life insurance coverage. Premiums for permanent life insurance policies tend to cost more than term life insurance premiums, but that’s because they buy you coverage for life. With term life insurance, policyholders can only get coverage for a set number of years.
How do permanent life insurance premiums work?
Each month, you will pay a premium amount defined in your insurance contract. Some permanent life insurance policies, such as whole life insurance, have a fixed premium that does not change. Others, like universal life policies, may allow you to adjust your premium. Each premium payment is divided into two installments:
The death benefit is the tax-free money your beneficiaries will receive if you die while your policy is still in force. It can be paid as a lump sum or in fixed installments. With some types of policies, you can adjust your premium to change the death benefit. For example, you may be able to lower your premiums in exchange for a lower death benefit.
The other part of each premium payment goes into a savings account called the cash value. This cash value can grow at varying rates, depending on the policy. For example, whole life insurance policies offer a fixed, guaranteed interest rate. Meanwhile, universal life policies allow you to invest your cash value in the stock market for more growth potential (at the risk of incurring losses).
You can borrow from this cash value at low rates with no credit checks or monthly payments required. But keep in mind that you can’t let the loan exceed the cash value or your policy could expire. You can also withdraw funds once you have accumulated sufficient cash value, although this could potentially reduce your death benefit.
If you surrender your policy, you can get the cash value minus the surrender charge. Certain types of permanent life insurance policies may also allow you to use your cash value to cover some or all of your premium payments once you have accumulated enough savings.
The bottom line
Permanent life insurance premiums can cost more than term life insurance premiums, but for many the benefits can outweigh the costs. For one, you get lifetime coverage. Regardless of when you die, your family will receive the death benefit. Plus, the higher premiums save you money and build wealth in your cash value account, which can be a valuable asset in the future. Be sure to assess your life insurance needs and budget so you can choose the right permanent life insurance policy for you and your loved ones.
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