Thinking of purchasing a permanent life insurance policy? That could be a smart move. As its name suggests, permanent life insurance provides coverage for life, assuming you meet the required premiums each year. It can also serve as a tax-deferred growth vehicle, as many permanent policies offer cash value accumulation.
There are many different types of permanent policies available, though. Not every policy is right for every need. In fact, some policies may be unsuitable for your specific objectives. If you’re inexperienced with permanent life insurance, you may be unsure of which type is right for you.
Generally, permanent life insurance policies fall into one of three categories: whole life, universal life or variable universal life. Below is a description of each type and how it may fit your needs. A financial professional can help you analyze your options and find the right policy for your objectives.
This is probably the most straightforward and simplest form of permanent life insurance. You purchase a policy for a level death benefit amount. Your premiums are also level for the duration of the policy. As long as you make the required premium payments, you are covered for life.
A portion of your premium goes into a cash value account. This account accumulates dividends and grows on a tax-deferred basis. The dividends are paid by the insurance company and may fluctuate from year to year. However, your cash value is not exposed to market risk and will never decrease. You can use your accumulated funds to pay your premiums or buy additional coverage. You can also take income from your cash value in the form of a loan or withdrawal.
Universal life insurance works similarly to whole life, but with a few distinctions. Both policies have a set premium and death benefit. Both also have a tax-deferred cash value account that has no downside risk.
In a universal life policy, however, your death benefit and premiums are flexible. You can adjust either up or down at any time, within certain limits. If you’ve accumulated enough cash value, you also may be able to skip premium payments in certain years. The flexibility of universal life insurance could be helpful as your life and needs change over time.
Also, universal life policies offer interest-based accumulation rather than dividend payments. Your interest rate could fluctuate over time. Your policy will offer a guaranteed* minimum interest rate, however, so you’ll always know the least amount of interest you will earn in any given year.
Ready to find the right permanent policy for your goals? Let’s talk about it. Contact us today at Baacke Insurance Services. We can help you analyze your needs and choose the right policy. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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