Permanent life insurance is also known as whole life insurance. A whole life insurance policy covers you for your entire life, not just for a specific period such as term insurance. Your death benefit and premium in most cases will remain the same. Unlike term life insurance, a portion of your premium money goes toward your cash value. Also, your premium will remain constant during the time you are covered unless you choose otherwise. And, unless you make a change to your whole life insurance policy, you have lifelong coverage with no future medical exams.
There are two major types of whole life insurance plan in the market, they are:
Non-Participating Whole Life Insurance
A non-participating whole life policy has a level premium and face amount during your entire life. The advantages of such a policy are its fixed costs and relatively low out-of-pocket premium payments. Since the policy is non-participating it does not pay you any dividends.
Participating Whole Life InsuranceA participating whole life policy pays dividends. The dividends represent the favorable experience of the company and result from excess investment earnings, favorable mortality and expense savings. Dividends can be paid in cash, used to reduce your premium payments, left to accumulate at a specified rate of interest or used to purchase paid-up additional insurance which will increase your face amount of coverage. Dividends are not guaranteed to be paid to you.
Within the two broad categories of traditional non-participating whole life insurance and participating whole life insurance, there are various whole life plans that are available for you to choose.
The rate of return on a whole life insurance policy is very low compared to other investments, even with the tax sheltered investments factored in. Most investment professionals would agree that life insurance should not be used solely as an investment tool and you should judge your policy choices on the protection and not the rate of return. But, if you are in need of life insurance, the tax benefits and cash value is an added bonus when purchasing protection for your loved ones.