Permanent life insurance may be especially well suited to individuals in need of long term protection. When suitable, it can be a valuable tool in estate planning, legacy planning and retirement planning scenarios. Depending on the type of permanent insurance product selected, it may also provide a cash value.
Term life insurance differs from permanent life insurance and may be a good choice in affordable short-term coverage for a growing family with a mortgage and college tuition on the horizon. As the name implies, term life insurance may be best suited to your life insurance needs that are specified in duration. Term Life costs may be prohibitive at older ages. But later, the lifelong protection and potentially growing cash value of permanent life insurance policies may make them an essential part of a smart, long-term strategy.
Meeting with a professional advisor may be the appropriate way to decide when permanent life insurance is right for you. However, it may be helpful to first understand the basics of these policies and the options you’ll have to consider.
Permanent life insurance policies are created for your long-term needs and typically guarantee that as long as premiums are paid when due, a specific death benefit may be paid. These policies are frequently used in combination with term life insurance, providing an opportunity for legacy planning and building an inheritance for heirs.
In addition, the policy may provide a guaranteed cash value that grows tax deferred and may be borrowed upon for any reason. These loans may be tax free. The accumulating cash value may also be borrowed upon or withdrawn, oftentimes tax-free.
Premiums are generally set when you obtain the policy using your age and health as a factor in premium pricing. Unlike term life insurance, the premiums may not increase with your age.
Permanent Life Versus Term Life Insurance
Permanent life insurance can be thought of as owning a home and paying the mortgage on a property that’s yours to keep forever. In contrast, term life is comparable to renting a home.
The major distinction between these two policy types is the time period of your coverage. Permanent life insurance may provide coverage for the duration of your life, no matter how long, and build equity long-term. Term life insurance may cover only a specific time period, such as 5, 10, 20 or 30 years in which the premium stays the same.
Term life insurance may be better suited for short term protection, in the case of needing income replacement when the unexpected occurs. Rather than a permanent life insurance policy, with a value that’s accumulated over time, term life insurance offers a specific benefit amount. No matter how long your term life policy is, it may not ever grow in value.
While the premiums of term life policies may be more affordable initially, the premiums may become prohibitive as you age. When it does, the premiums you’ll face to remain covered may be drastically higher than the premiums of a permanent life insurance policy obtained when you were younger and in good health.
Generally, term life insurance is recommended for a specified duration of time when your dependents will be financially relying on you as a provider. Once your children are through college and the mortgage of your home is paid down, permanent life insurance may become a better choice.
Types of Permanent Life Insurance
Within the permanent life insurance category, there are several types of policies. Each policy type may also vary from company to company, so it may be helpful to understand your options.
Whole Life is a permanent life insurance policy that may provide for guaranteed premiums, guaranteed death benefits and guaranteed cash values. Whole Life policies offer the potential to earn dividends that may increase the policy’s cash value above and beyond the guaranteed cash values.
Universal Life is an interest sensitive permanent life insurance policy. Universal Life affords premium flexibility. This premium flexibility may be a positive or a negative depending on the interest rate environment. In a prolonged low interest rate environment, the cash value may not be enough to support the policy and additional premiums may be required.
Variable life is a permanent product that allows the cash values to be invested in sub-accounts similar to mutual funds. In the event of poor performance of these sub-accounts, additional premiums may be required to keep the policy in effect.
Limited Pay Whole Life
Limited pay whole life is a whole life policy that provides for a limited premium payment period. Typically, premiums may be limited to 10 years, 20 years or to age 65. At the end of the limited pay period, no further premiums may be paid and the policy is considered "paid-up."
Similar to traditional whole life, the policy may provide for guaranteed death benefits and guaranteed cash values. Dividends may be paid and could increase the cash values.
Your Investment in Life Insurance
Many dental professionals choose a combination of term and permanent life, to provide for the financial demands of their life and family as they evolve, while locking in a lower premium before age and health lead to drastic increases. When you’re ready to explore life insurance policies, a professional advisor with experience in the dental industry can help you choose the right types of protection for your life insurance goals.
About Treloar & Heisel
Treloar & Heisel is a premier financial services provider to dental and medical professionals across the country. We assist thousands of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and a strong national network focused on delivering the highest level of service.
Treloar & Heisel and Treloar & Heisel Risk Management are divisions of Treloar & Heisel, Inc.
Insurance products offered through Treloar & Heisel, Inc.
Treloar & Heisel, Inc. does not offer legal or tax advice. Please consult a professional concerning these topics.
These policy descriptions and definitions are intended for general informational purposes only, and are not binding. For actual policy descriptions and definitions, please consult the terms of your insurance policy.