Life Insurance Policy Options: Control And Flexibility

There are two main types of life insurance plans: term or permanent plans, or a combination of the two. Term insurance provides protection for a specified period, which could be as short as one year or as long as 10, 20, or 30 years. Permanent insurance, on the other hand, provides coverage for the entire lifetime of the insured person. Within these two main types, there are several variations. For example, term insurance can be further categorized into renewable term, convertible term, level or decreasing term, and adjustable premium. Permanent insurance includes whole life insurance, universal life insurance, and variable universal life insurance.

The policyowner can borrow against the cash value of the policy

Permanent life insurance policies allow the policyowner to borrow against the cash value of the policy. This type of insurance offers a death benefit throughout a policyowner's life, provided the premiums are paid for a certain period. Permanent life insurance policies also offer the opportunity to build up a "cash value" component over time. Policyowners can tap into the cash value of a permanent life insurance policy for any reason, such as a down payment on a house, college tuition, or supplementing retirement income. This cash value grows on a tax-deferred basis.

Whole life insurance is probably the most straightforward type of permanent life insurance in terms of having lifetime protection with cash accumulation. The cash value grows based on a set interest rate guaranteed by the carrier. Premiums for permanent whole life insurance policies can be set at a certain dollar amount for a certain payment period, depending on a policyowner's particular needs and resources. For instance, some policies can be paid up after 10 premium payments, while others can be acquired with a pay-to-age-100 premium schedule.

Additionally, many whole life insurance policies are "participating", which means they may receive dividends. Dividends can be used toward premium payments, to add to the cash value, or to increase the size of the death benefit of the insurance policy. Dividends are not guaranteed and their payment typically depends on the operating results of the insurance carrier.

Universal life insurance is another type of permanent life insurance with a cash value component that earns interest. Universal life features flexible premiums. Unlike term and whole life, premiums can be adjusted over time. UL also lets the policyowner choose between level death benefit or increasing death benefit options.

Variable universal life insurance allows the policyowner to invest the policy's cash value in an available separate account. It also has flexible premiums and can be designed with a level or increasing death benefit. The earnings from the account add to the cash value and may increase the size of the death benefit of the insurance policy. Insurance and other costs are paid from the account. However, the account could post a loss because it is tied to market performance. That, in turn, could affect the amount of funds available to pay for the underlying insurance protection and the size of the death benefit.

In summary, permanent life insurance policies offer the policyowner the ability to borrow against the cash value of the policy. This cash value can be used for a variety of purposes, such as a down payment on a house, college tuition, or supplementing retirement income. The cash value grows on a tax-deferred basis and can provide financial flexibility for policyowners.

The policyowner can use the cash value to pay premiums

Permanent life insurance policies such as whole life and universal life can accumulate cash value over time. The policyowner can use the cash value for many purposes, including borrowing or withdrawing cash from it, or using it to pay policy premiums.

Whole life insurance is also referred to as "ordinary life" or "straight life." It provides coverage for your entire lifetime. The premium depends on your age at the time you buy and stays the same as you grow older. The lowest premiums go to those who buy it when they're young, as they'll pay into it the longest.

Whole life insurance has a cash savings component, known as the cash value, which the policy owner can draw on or borrow from. The cash value of a whole life policy typically earns a fixed rate of interest.

Withdrawals and outstanding loan balances reduce death benefits.

Universal life insurance is also referred to as "flexible premium adjustable life insurance." It features a savings element (cash value) that grows on a tax-deferred basis. The insurer invests a portion of your premiums. The return on the investment is credited to your policy tax-deferred.

Universal life insurance offers a guaranteed minimum interest rate, which means the insurer guarantees a certain minimum return on your money. If the insurer does well with its investments, the interest rate return on the accumulated cash value increases.

You can also use the cash value to cover your monthly premium payments instead of paying out of pocket. Or you can surrender the whole policy to receive the entire available cash value (minus any surrender fees). However, the policy will be terminated, and the death benefit will no longer be available to your beneficiaries.

The policyowner can use the cash value for any reason

Permanent life insurance policies allow the policyowner to build up a "cash value" component over time. This cash value can be used for any purpose, such as a down payment on a house, college tuition, or supplementing retirement income. It is important to note that withdrawing from the cash value will reduce the policy's cash value and death benefit and may result in a tax liability if the policy terminates before the death of the insured.

Whole life insurance is a type of permanent life insurance that offers a straightforward approach to lifetime protection and cash accumulation. The cash value grows based on a set interest rate guaranteed by the carrier. Premiums for whole life insurance policies can be set at a certain dollar amount for a specific payment period, depending on the policyowner's needs and resources. Some policies can be paid up after 10 premium payments, while others follow a pay-to-age-100 premium schedule. Additionally, many whole life insurance policies are "participating," meaning they may receive dividends that can be used to reduce premium payments, increase the cash value, or increase the size of the death benefit.

Universal life insurance, another type of permanent life insurance, offers death benefit coverage and the accumulation of cash value based on the amount paid in premiums. Universal life insurance policies provide flexible premiums, allowing policyowners to adjust their premium payments once they have built up enough cash value to cover the cost of insurance and administrative charges. This flexibility can be advantageous for those who want to pay more into their policy during their working years and then use that cash value to pay premiums during retirement.

Variable universal life insurance allows policyowners to invest the policy's cash value in an investment account managed by the insurance company. The earnings from this account add to the cash value and may increase the size of the death benefit. However, it is important to note that the account could post a loss due to market performance, affecting the funds available for insurance protection and the size of the death benefit. Variable universal life insurance policies offer premium flexibility, allowing policyowners to adjust their payments in response to market performance.

In summary, permanent life insurance policies provide the policyowner with a "cash value" component that can be used for any reason. Different types of permanent life insurance, such as whole life, universal life, and variable universal life, offer varying features for premium payment and cash accumulation. It is important to carefully consider the features and potential risks of each type of policy to ensure it aligns with the policyowner's needs and goals.

The policyowner can use the cash value to supplement retirement income

Permanent life insurance policies allow the policyowner to build up a "cash value" component over time. Policyowners can tap into the cash value of a permanent life insurance policy for any reason, such as supplementing retirement income. This cash value grows on a tax-deferred basis.

Whole life insurance is probably the most straightforward type of permanent life insurance in terms of having lifetime protection with cash accumulation. The cash value grows based on a set interest rate guaranteed by the carrier. Premiums for permanent whole life insurance policies can be set at a certain dollar amount for a certain payment period, depending on a policyowner's particular needs and resources. For instance, some policies can be paid up after 10 premium payments, while others can be acquired with a pay-to-age-100 premium schedule.

Many whole life insurance policies are "participating", meaning they may receive dividends. Dividends can be used toward premium payments, to add to the cash value, or to increase the size of the death benefit of the insurance policy. Dividends are not guaranteed and their payment typically depends on the operating results of the insurance carrier.

Universal life insurance is another type of permanent life insurance with a cash value component that earns interest. Universal life features flexible premiums. Unlike term and whole life, premiums can be adjusted over time. UL also lets the policyowner choose between level death benefit or increasing death benefit options.

Variable universal life insurance allows the policyowner to put a policy's cash value into an investment account managed by the insurance company. The earnings from the account add to the cash value and may increase the size of the death benefit of the insurance policy. However, the account could post a loss because it is tied to market performance. That, in turn, could affect the amount of funds available to pay for the underlying insurance protection and the size of the death benefit.

The policyowner can use the cash value to pay off a mortgage

Permanent life insurance policies allow the policyowner to build up a "cash value" component over time. Policyowners can tap into the cash value of a permanent life insurance policy for any reason, such as paying off a mortgage, a down payment on a house, college tuition, or supplementing retirement income. This cash value grows on a tax-deferred basis.

Whole life insurance is probably the most straightforward type of permanent life insurance in terms of having lifetime protection with cash accumulation. The cash value grows based on a set interest rate guaranteed by the carrier. Premiums for permanent whole life insurance policies can be set at a certain dollar amount for a certain payment period, depending on a policyowner's particular needs and resources. For instance, some policies can be paid up after 10 premium payments, while others can be acquired with a pay-to-age-100 premium schedule.

Additionally, many whole life insurance policies are "participating", meaning they may receive dividends. Dividends can be used toward premium payments, to add to the cash value, or to increase the size of the death benefit of the insurance policy. Dividends are not guaranteed and their payment typically depends on the operating results of the insurance carrier.

Universal life insurance, like whole life, offers death benefit coverage and the accumulation of cash value, based on how much you pay in premiums. The premiums are generally flexible, within certain limits. Once you've built up enough cash value in your policy to cover the cost of insurance and administrative charges, you can adjust your premium payment. That means you can pay more or less into your policy, depending on your individual circumstances.

Variable universal life insurance allows policyowners to put a policy's cash value into an investment account managed by the insurance company. The earnings from the account add to the cash value and may increase the size of the death benefit of the insurance policy. Insurance and other costs are paid from the account. However, the account could post a loss because it is tied to market performance, which could affect the amount of funds available for the underlying insurance protection and the size of the death benefit.

Frequently asked questions