When it comes to long-term financial planning, investing in a good life insurance policy is vital for the survival of your dependents. It isn’t a luxury but rather a necessity as it ensures the financial security of your loved ones after your demise. However, deciding on a life insurance policy and choosing one that best fits your requirements can be complex. But William Schantz is here to help you make an informed decision.
Life insurance policies can be classified into two major categories; term and permanent life insurance. Stated below are the different types of permanent life insurance policies, what they offer, and how they can fulfill your needs.
Permanent Life
As the name states, permanent life insurance is a legal agreement that remains intact throughout the policyholder’s lifetime. Unlike term life insurance which expires after a designated period, permanent life holds its value until the insured stops paying premiums or chooses to withdraw. Schantz suggests that you keep the following components in mind when considering permanent life insurance:
- Premiums: In simple words, premiums are the installments the policyholder pays either monthly, semi-annually, or annually to keep the insurance intact. If the insured pays premiums regularly and on time, the insurer is legally bound to pay the policy’s death benefit to chosen beneficiaries.
- Death Benefit: Death benefit is the amount of money the insurance provider legally agrees to pay the beneficiaries upon the policyholder’s demise. The amount of the death benefit is decided by the policyholder according to the needs of their dependents.
- Cash Value: Unlike term life, a significant component of permanent life insurance is the ability to accumulate cash value. This cash value serves two purposes; it can be used as a savings account, from which the insured can withdraw money at any time to use for emergencies. Or the cash value can be used to pay policy premiums.
Permanent life insurance policies can be further divided into two categories, each with unique characteristics catering to clients’ vast demands and preferences.
Whole Life:
This type of life insurance offers lifetime coverage, death benefit, a savings account, and other guaranteed features. Whole life policy has a fixed premium, meaning you pay the same amount for coverage each year. The insured can also borrow against the cash value accumulated in their savings and utilize them for loans or emergencies. William Schantz believes that whole life insurance is a good option for individuals who want
- Level premiums, the amount of which stays consistent
- Cash value accumulation that can be used while policyholders are still alive
- Guarantee that the death benefit won’t decrease
- Fixed interest rates on cash value
Universal Life:
This type of insurance is far more flexible than whole life, offering the policyholder significantly more control. Although the policy is cheaper, it requires constant oversight and doesn’t offer guaranteed features. The policyholder can adjust the amount of premiums they’ll pay each year by tapping into the policy’s cash value. This type of insurance is more suited for individuals who want to:
- Tie cash value gains to market performance
- Have flexibility when it comes to premiums and death benefit
- Cash value interest isn’t fixed and depends on the current interest rates
- Use cash value during the lifetime of the policyholder
The Bottom Line
Unlike term life, both types of permanent life insurance offer cash value that can be utilized tax-free during the policyholder’s lifetime. Both of these policies are designed to last a lifetime. While whole life insurance offers stability and is more reliable, universal life insurance is flexible and has variable interest rates. Either way, know that purchasing life insurance is a long-term investment that’ll help secure the future of your dependents. For more information, visit William Schantz blog.
