PERMANENT INSURANCE

While term insurance is designed to provide protection for a specified time period, permanent insurance is designed to provide coverage for your entire lifetime.  To keep the premium rate level, the premium at the younger ages exceeds the actual cost of protection.  This extra premium builds a reserve (cash value) which helps pay for the policy in later years as the cost of protection rises above the premium. Under some policies, premiums are required to be paid for a set number of years.  Under other policies, premiums are paid throughout the policyholder’s lifetime.  The insurance company invests the excess premium dollars.

This type of policy, which is sometimes called cash value life insurance, generates a savings element.  Cash values are critical to a permanent life insurance policy.  The size of the cash value build-up differs from company to company.  Sometimes, there is no correlation between the size of the cash value and the premiums paid.  It is the cash vale of the policy that can be accessed while the policyholder is alive.

The policy’s essential elements consist of the premium payable each year, the death benefits payable to the beneficiary and the cash surrender value the policyholder would receive if the policy is surrendered prior to death.  You may make a loan against the cash value of the policy at a specified rate of interest or a variable rate if interest but such outstanding loans, if not repaid, will reduce the death benefit.