Permanent insurance provides lifelong protection and is known by a variety of names. These policies are designed and priced for you to keep over a long period of time. If you don't intend to keep the policy for the long term, it could be the wrong type of insurance for you.
Most permanent policies, including whole, ordinary, universal, adjustable and variable life, have a feature known as "cash value" or "cash surrender value." This feature, which is not found in most term insurance policies, provides you with some options:
- You can cancel or "surrender" the policy -- in total or in part -- and receive the cash surrender value in a lump sum. However, if you surrender your policy in the early years, there may be little or no cash surrender value.
- If you need to stop paying premiums, you can often use the cash surrender value to continue your current insurance protection for a specific period of time or to provide a lesser amount of protection to cover you for as long as you live if there is sufficient cash value.
- Usually, you may borrow from the policy, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or the beneficiaries will receive a reduced benefit at the death of the insured.
- Cash values of many life insurance policies may be affected by your carrier's future experience, including mortality rates, expenses and investment earnings.
- Keep in mind that with all types of permanent policies, the cash value of a policy is different from the policy face amount. Cash surrender value is the amount of available cash when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death or at policy maturity.
Note: Any reference to the word guarantee is based on the ability of the underlying insurance company to honor that guarantee.
What are the Types of Permanent Insurance?
There are many different types of permanent insurance. The major ones are described below:
Whole Life or Ordinary Life
Universal Life or Adjustable Life