SECTION IV- Permanent Life Insurance

Permanent life insurance should be used for permanent needs. If a business wants to permanently retain a key employee, a whole life insurance contract is an appropriate employee benefit. If the owner of a business is also a key employee, permanent life insurance is appropriate to cover the eventual loss of that employee-owner. Permanent life insurance would be inappropriate for covering a short-term loan, which is a temporary need.

As with term life insurance, a portion of the premium is used to fund the contract if the insured dies prematurely. A second portion of the premium establishes a fund that will provide a specific benefit whether or not the insured dies.

This second portion of the permanent life insurance premium makes up the policy's cash value. Premiums in the early years of term policies are significantly lower than premiums in the same years of permanent policies. Permanent policies have a cash value, which comes from the difference between the cost of the insurance (what is paid for term) and the amount of premium paid for the permanent policy.

Accumulated values are protected and may not be forfeited. A policy may be surrendered for its cash value, or the cash value may be used to purchase another form of insurance. Policy loans are also available once a policy has accumulated cash value (but face value decreases when policy loans are made).

Because of that initial difference in premium, many clients choose term insurance. But the premium for term insurance will increase as the client grows older, due to the increased likelihood of dying.

Permanent policies, on the other hand, are more expensive than term policies in the early years of the policy, but in the long run the annual premium of term insurance will usually exceed that of permanent insurance.

An agent should show the client the total long-term premium (twenty years, thirty years, or longer) for both term and permanent policies, to assist them in making their decision.

Whole Life

Whole life insurance provides level premiums and lifetime protection. Two basic types of whole life insurance are straight life and limited-payment life insurance. Straight life insurance provides lifetime protection to age 100 with level premiums paid periodically until the insured dies or reaches age 100. Limited-payment life insurance requires level premium payments for only a specified number of years, although the protection is for a lifetime. All whole life policies have cash values.

Whole life insurance combines insurance protection and savings in a permanent contract that remains in effect for an insured's whole life. It provides a level face amount payable as a death benefit, which consists of the combined value of the declining net insurance protection and accumulating cash value. The policy is designed to mature when the insured reaches age 100, at which time the cash value would equal the face value and become payable as a living benefit.

23 All whole life policies follow the level premium concept. Under continuous payment straight life policies, premiums are payable until age 100. A whole life policy may also be purchased with a single premium, or according to a limited premium payment schedule which permits the policy to become fully paid-up after a specified number of years.

Whole life insurance is widely used to provide family security because it combines insurance protection and savings, which are the two major elements in the financial plans of most individuals. Term insurance may be used as the "pure protection" underlying an investment plan, or when there is a need for additional protection, and annuities or other investments such as stocks, bonds, or mutual funds may be used when there is a need for greater accumulation of assets.