Q: What is permanent life insurance? Is it different than a term life insurance policy?
A: Permanent life insurance is a phrase given to a life insurance policy that a customer buys with the intent of keeping it in place until they die, or until they reach an advanced age where life insurance is unnecessary. Term life insurance, on the other hand, is a year to year policy often used to meet an insurance need during a specific period of life, but may be discontinued after time.
Permanent life insurance is designed to be purchased at a younger age and kept for decades. At younger ages, term life insurance is very inexpensive, while at older ages, it can be prohibitively expensive. Permanent insurance takes the entire spectrum of life premiums, from youth to old age, averages them, takes the premium above that needed to fund the term premium in the early years, and “invests” it over time.
The growth of the excess premium is kept by the insurance company in the form of a savings account that is used to fund future premiums, or to build a cash value that can be borrowed against in an emergency, or withdrawn when the insurance is no longer needed. If the insured dies during the policy term, the death benefit is paid. If the insured outlives their need for the insurance, they can withdraw the cash value later in life to use as they see fit.