Life insurance can be a difficult topic to discuss. But however unpleasant the thought may be, knowing how permanent life insurance works and what it could cost you is only beneficial when making a decision on coverage and price.
An independent insurance agent can help set your mind at ease with a valuable and budget-friendly permanent life insurance solution. Suiting your budget and giving you peace of mind in the process.
What Is Permanent Life Insurance, Exactly?
When making these important life decisions for you and your family, it's key to know what you're covered for and how it works. Permanent life insurance is just one of two types of life insurance and there are three different permanent life insurance policy types. Knowing the differences is the first step in making an educated decision.
The two types of life insurance:
- Permanent life insurance - aka whole life, universal life or indexed universal life insurance. This life insurance product is in it for the long-term. Typically covering your life in the event that you pass usually up to age 120. This is the more expensive of the life insurance policies because it can act as a few different coverages and as you can see has three different options or policy types to choose from.
- Term life insurance - this is the simple, no bells and whistles life insurance policy on the market. Giving you coverage in the form of a dollar amount in the event that you pass within the "term" selected. Terms usually run 10, 20 or 30-year increments and once the time is up so is the policy and coverage is no longer effective.
The 3 Types of Permanent Life Insurance
Permanent life insurance has options, which is good for you and kind of has a policy for everyone which is much better than your one size fits all approach.
1.) Whole life insurance - this is your fixed-rate permanent life insurance policy. It's the most basic of the permanent life insurance options. There is, of course, a death benefit in the amount that you and your independent insurance agent pre-selected which will be distributed to your family or whomever your beneficiary is listed on the policy.
There is also a cash value within your whole life policy that grows over time based on the years and amount of premium paid in. Typically you can borrow against this cash value within 10 - 20 years of consistently paying your premiums.
2.) Universal life insurance - this is whole life's cheaper more investment savvy cousin. A universal life policy is a type of permanent life insurance that has a savings arm for its actual cash value.
This allows you as the policyholder to pay more than the premium due which will take any additional premiums paid and put it in savings that are invested and gross taxed deferred, providing cash value for future use.
There is also a stop payment option in the event you fall on hard times and can't make your monthly or annual premium payment but still need to keep your universal life policy intact. You can pay your premiums with that additional premium that got put into the savings component of the policy should you be running low on funds.
The premiums on this one can be fixed or variable. A variable option is more risky because their premiums are pretty much guaranteed to fluctuate. You may also go with a fixed universal life option but the premiums may cost more.
3.) Indexed universal life insurance - now think of universal life's stockbroker cousin and you've got an indexed universal life policy. The main differences is an indexed universal life policy aka an IUL allows you to allocate cash value amounts to either a fixed account or an equity index account.
Some of the more common indexes that an IUL is tied to would be the S&P 500. IUL's offer tax-deferred cash accumulation for retirement while maintaining a death benefit. They also have a cap on both ends of the index account meaning it can't drop below or rise above a certain percentage depending on what the stock market is doing.
So if the stock market plummets then most IUL policies won't allow the index fund to go into the negative and caps it at 0%. But let's say the stocks rise and are a crazy 30% up your policy will typically cap at 17%, still a good lick but not as good as the full rise.
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How Much Is Permanent Life Insurance Going to Cost?
Variables, variables, variables. When it comes to permanent life insurance costs or any insurance for that matter, it's important to remember there are different variables that determine your premiums.
The biggest variable to know is age. Yep, when it comes to life insurance age matters. The younger you are when you buy a life insurance policy, the cheaper your premium will be. Regardless of the policy, life insurance becomes progressively more expensive as you age.
Knowing what some of the most price-determining factors are when you are purchasing your permanent life insurance policy is essential. Your independent insurance agent can be a knight in shining armor when it comes to finding you a life policy that not only provides the best coverage but is also one you can afford.
Permanent life cost determining variables:
- Age: as mentioned above, the younger you buy life insurance, the more affordable it will be. As you age, so does your chances of needing to use your life insurance policy.
- Gender: it may sound crazy but life insurance premiums tend to be higher for men and less for women. This has a lot to do with lifestyle and disease factors and a really, really extensive list of statistics that actuaries have figured out based on past claims and risk components.
- The state of your health: in short, the healthier you are, the lower your risks are and the more affordable your policy will be.
- Whether you smoke: you guessed it, smokers pay considerably more for life insurance. You can reduce your rates if you quit smoking, although you will likely have to have quit for at least a year or more.
- Lifestyle: living a healthy lifestyle never looked so good and will help keep your life insurance rates at bay.
- Family medical history: if your family has a history of major diseases, you may pay a higher premium. Just another thing the actuaries have determined a chargeable premium.
- Occupation and hobbies: depending on what you do for a living and your extra-curricular activities can play a part in how much you will pay for your life insurance premium. If you work as a commercial deep-sea diver, for example, or you are a thrill-seeking, sky-diving adventurer, your rates will almost certainly be higher.
- Policy benefit amounts: the benefits your life policy has, particularly the death benefit amount, will determine a nice portion of your premium.
- Medical exam results: most life insurance policies require an updated medical exam prior to offering coverage. If your medical examination comes back clean and healthy your rates will be low, low, low. On the other hand, if your exam shows some existing medical issues you could be paying some pretty high payments or be denied coverage altogether.
How Do Life Insurance Companies Use Premiums?
Premiums don't just get pocketed by the big ole insurance companies. Quite to the contrary they actually get put to good use and pay for some of the following policy components:
- To help pay your death benefits
- To help pay the cost of administering your policy aka admin fees
- To help pay the cash value accumulation or saving/investment component
Finding out exactly how your specific policy utilizes your premiums is a better conversation to have with your independent insurance agent.
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What Happens If You Miss a Life Insurance Payment?
Missing a payment is never a good feeling, but it happens and such is life. What about when it happens to your life insurance policy? Most insurance companies have a grace period usually anywhere from 7 to 30 days. It will mainly be determined by the permanent life insurance policy type and the carrier you and your independent insurance agent go with.
A whole life policy may have some grace period, like a very short window of grace, and then the policy will cancel for non-payment because they don't usually mess around when it comes to missed payments.
On the other hand, with a universal life or an IUL policy option, the carrier will likely take the premium from the cash value accumulation portion and continue to pay the premium. If your universal life is variable the insurance company may or may not offer similar options.
Again, the best person to chat with on how your specific permanent life insurance policy responds to payments is your independent insurance agent. They have the details and are happy to go over them with you.
Benefits of an Independent Insurance Agent
Independent insurance agents have access to multiple insurance companies, ultimately finding you the best coverage, accessibility and competitive pricing while working for you.
And as your company grows and your needs change, they'll be there to help you adjust your coverage, up or down, to make sure you're properly protected without overpaying. Find an independent insurance agent in your community here.