Permanent life insurance is a form of financial protection designed to provide benefits both during the insured’s lifetime and after their death. Unlike term life insurance, which covers a specific period (such as 10, 20, or 30 years), permanent life insurance offers lifelong coverage as long as premiums are paid on time.
Today, I want to clarify the question: How does permanent life insurance work?
Features of Permanent Life Insurance:
- Death Benefit: Like all life insurance policies, permanent life insurance pays a death benefit to the insured’s designated beneficiaries upon their death. This benefit is intended to provide financial support to loved ones, cover funeral expenses, pay off outstanding debts, and ensure the family’s financial stability.
- Living Benefits: Similar to many term plans, some companies also offer living benefits, which can be accessed if you receive a severe, chronic, or terminal diagnosis. These benefits provide funds to replace your income, allowing you to focus on your recovery.
- Cash Value Accumulation: One of the distinguishing features of some permanent life insurance plans is the ability to accumulate cash value. Part of the premiums paid goes into a cash value account, which grows over time at a fixed or variable interest rate, depending on the type of policy. This cash value can be withdrawn or borrowed by the insured during their lifetime, subject to certain conditions.
- Tax Benefits: The benefits of permanent life insurance include significant tax advantages. Generally, withdrawals from the cash value account are tax-free up to the amount of the premiums paid. Additionally, the death benefit is tax-exempt for the beneficiaries, making it an effective tool for estate planning.
- Flexible Payments: Unlike some term life insurance policies with fixed premiums for a specific period, permanent life insurance can offer flexibility in premium payments. Some policies allow the insured to adjust the amount and timing of premiums, making it easier to adapt to changes in their financial situation.
Important Considerations:
It’s crucial to understand the specific conditions of each permanent life insurance policy, including the interest rates applicable to the cash value, available investment options, and tax benefits.
Permanent life insurance provides not only financial protection for beneficiaries in the event of death but also additional benefits such as cash value accumulation and tax advantages. Now that you know how permanent life insurance works, consider your financial and personal goals when evaluating if this type of insurance is suitable for you and your family.
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