Permanent life insurance and general details about its variations
If you would like to secure people close to you without considering time limits, whole life insurance is usually the best approach. This type of insurance allows you to maintain the policy active (by paying the premiums regularly) until it becomes mature. That can come in handy, since the insurance company cannot cancel the policy for reason other than fraud committed by the applicant.
On the other hand, with permanent life insurance, the premiums increase over the years and if the amounts to be paid once the policy matures are high, so are the premiums. The advantage of this type of policy is that the owner has access to the cash and he or she can make a withdrawal, borrow the money or terminate the policy earlier and receive the surrender value (surrendering the policy).
Permanent life insurance has four variations which are whole life, universal life, limited pay and endowment.
With whole life insurance, premiums go up together with the age of the applicant but at least it allows a client to get a hold of the cash reserves through the policy loans. This is why whole life insurance can be referred to as 2 in 1 offer, since it basically allows you to have a savings account and death benefit at the same time.
Universal life coverage also has its subclasses and they can be divided into interest sensitive (traditional fixed insurance), variable universal life, guaranteed death benefit, and equity indexed universal life insurance. With universal life coverage there is a greater flexibility in premium payments and the prospective for growth of cash values.
Limited pay insurance stands for the variation of permanent life insurance where all the premiums have to be paid over a certain period. Once that is done, there are no further payments to be made in order to keep the policy active. The usual fixed periods are 10 and 20 years and they are paid after the applicant reaches 65.
With endowments, the policies are designed so that increasing cash value of the policy is equivalent to the death benefit at certain age known as endowment age. Annual premiums of endowments are much more expensive than whole life and universal life variants since the period during which a person will pay the premiums is shorter. Also, the endowment insurance needs to be paid out after the prescribed period even if the insured is still alive, since the end of that period is actually when the policy matures.