o Whole
o Universal
o Variable universal
o Endowment
o Limited pay

Each of these types have several things in common:

o build-up of a cash value
o higher premiums
o overage paid on premium helps build cash value
o cash value portion is invested
o after a specified period of time, you can take out a loan from the cash value

In a way, permanent life insurance is like a savings account. Under the right circumstances, you could have a nice bit of cash to borrow from. Loans on the cash value are usually not considered as income, so are not taxable. Policies can also be surrendered for a pay out of the cash value, minus fees. Brief explanations of the different types of permanent life insurance follow.

Whole Life Insurance

Whole life insurance can be very expensive, partly because the premium covers fees and commissions as well as a portion that is to be invested. Features of whole life include:

o death benefit is guaranteed
o premiums are level
o amount earned on the cash value is set at a certain rate
o possibility of earning dividends
o you save on premiums, compared to paying stepped premiums on term
o Death benefit can be increased through the use of dividends
o Premiums can be lowered by the dividends
o Policy holder can take out the dividends

Limitations of whole life policies include

o Considerably higher premiums that are unchangeable
o No guarantee of dividends
o No way of knowing how the cash value will be invested
o The rates of earning on the cash value may not equal rates you could earn on other savings products
o Loans not paid back decrease the death benefit
o In the end, the cash value is not paid out in addition to the death benefit

Universal Life Insurance

Universal life insurance is more flexible than whole life. The high premiums can be changed under certain circumstances. Some common features of universal life insurance are:

o more ways to increase the cash value
o adjustable premiums and death benefits
o premiums may become unnecessary with sufficient cash value
o amount of return on invested portion can be greater
o death benefit can grow with cash value
o death benefit can be guaranteed
o various terms on invested portion are usually available

Some characteristics of universal life insurance that could be detrimental are:

o reductions of cash values due to charges and fees
o adaptable death benefit and changeable premiums may result in fewer guarantees all around

Variable Universal Life Insurance

Variable universal life insurance has a few differences, such as:

o you choose the way the cash value is invested
o cash value varies according to how well the investments are doing
o death benefit depends on how well investments do

Endowment and Limited Pay Life Insurance

Endowment and limited pay life insurance both feature cash values that can be borrowed from. With endowment life insurance:

o cash value builds to the same amount as the death benefit within a specified time period
o at the end of the policy, cash value is paid to the insured – even if still alive
o cover is very expensive

The features of limited pay life insurance are:

o Premiums are only paid for a certain length of time or until a certain age.

Permanent Life Insurance Can be a Good Investment

Permanent life insurance can be a great way to save money and use it tax-free. You can be protected throughout your lifetime. If you have paid premiums for a number of years and your beneficiary’s needs are less of an issue, you might borrow a nice sum of money and still leave a good bit there for the death benefit. A qualified broker can best guide you in understanding permanent life insurance choices.