Note: Any reference to the word guarantee is based on the
claims paying ability of the underlying insurance company.
Permanent insurance provides lifelong protection and is known by a
variety of names. These policies are designed and priced for you to
keep over a long period of time. If you don't intend to keep the policy
for the long term, it could be the wrong type of insurance for you.
Most permanent policies including whole,
ordinary, universal, adjustable and variable life have a feature known
as "cash value" or "cash surrender value." This
feature, which is not found in most term insurance policies, provides
you with some options:
You can cancel or "surrender" the policy -- in total
or in part -- and receive the cash surrender value as a lump sum
of money. If you surrender your policy in the early years, there
may be little or no cash value.
If you need to stop paying premiums, you can often use the cash
surrender value to continue your current insurance protection for
a specific period of time or to provide a lesser amount of protection
to cover you for as long as you live if there is sufficient cash
Usually, you may borrow from the policy, using the cash value in
your life insurance as collateral. Unlike loans from most financial
institutions, the loan is not dependent on credit checks or other
restrictions. You ultimately must repay any loan with interest or
your beneficiaries will receive a reduced death benefit.
The interest crediting rate and therefore cash values of many life
insurance policies may be affected by your carrier's future experience,
including mortality rates, expenses and investment earnings.
Keep in mind that with all types of permanent policies, the cash
value of a policy is different from the policy face amount. Cash
surrender value is the amount of available cash when you surrender a policy
before its maturity or your death. The face amount is the money
that will be paid at death or at policy maturity.
What are the Types of Permanent Insurance?
There are many different types of permanent insurance. The major ones
are described below:
Whole Life or Ordinary Life
Universal Life or Adjustable Life
This was the most common type of permanent life insurance. It was sold by Mutual Life Insurance Companies, however, some stock life insurance companies do offer a derivative product they call Whole Life. It is Life insurance that is kept in force for
a person's whole life as long as the scheduled premiums are maintained.
All Whole Life policies build up cash values. Most Whole Life policies
are guaranteed* as long as the scheduled premiums are maintained.
The variable in a whole life policy is the dividend which could
vary depending on how well the investments and other business criteria
of the insurance company are doing. If the
company is doing well and the policies are not experiencing a higher
mortality than projected, values are paid back to the policyholder
in the form of dividends. Policyholders can use the cash from dividends
in many ways. It can be used in three main areas: to lower premiums,
to purchase more insurance or to pay
for term insurance.
This variation of permanent insurance allows you, after your initial
payment, to pay premiums at any time, in virtually any amount, subject
to certain minimums and maximums. You also can reduce or increase
the amount of the death benefit more easily than under a traditional
whole life policy. (To increase your death benefit, you usually
will be required to furnish the insurance company with satisfactory
evidence of your continued good health.)(Decreasing does not lower
Advantages and Disadvantages of Permanent Insurance
This type of permanent policy provides death benefits and cash
values that vary with the performance of an underlying portfolio
of investments held in a separate account. You can choose to allocate
your premiums among a variety of investments which offer varying
degrees of risk and reward. You will receive a prospectus in conjunction
with the sale of a variable product.
The cash value of a variable life policy is not guaranteed*, and
the policyholder bears that risk. However, by choosing among the
available fund options, the policyholder can create an asset allocation
that meets his or her objectives and risk tolerance. Good investment
performance will lead to higher cash values and death benefits.
On the other hand, poor investment performance will lead to reduced
cash values and death benefits.
Some policies guarantee* that death benefits cannot fall below
a minimum level. There are both universal life and whole life versions
of variable life.
As long as the necessary premiums are paid, protection is guaranteed*
for your entire life or to a specific age / maturity.
Premium costs can be fixed or flexible to meet personal financial
needs.(Loans, withdrawals and other transactions may affect the premiums required)
Policy accumulates a cash value that grows on a tax-deferred basis
that you can borrow against. (Loans must be paid back with interest
or your beneficiaries will receive a reduced death benefit.) You
can borrow against the policy's cash surrender value to pay premiums or use
the cash surrender value to provide paid-up insurance.
The policy's cash surrender value can be surrendered -- in total or in part
-- for cash or converted into an annuity. (An annuity is an insurance
product that provides an income for a person's life-time or for
a specific period of time.)
Permanent Policy - Points to Consider
What does the policy illustration show?
Are the premiums within my budget? Be sure you want to spend the
money for this type of long-term coverage.
Can I commit to these premiums over the long term?
If you don't plan to keep the product for many years, consider
another type of policy.
Cashing in a permanent policy after only a couple of years can
be a costly way to get insurance protection for a short term.
An illustration shows policy premiums,
death benefits, cash values and information about other items that can
affect your cost of obtaining insurance. Your policy may provide
for dividends to be paid to you as either cash or paid-up insurance.
Or it could provide for interest credits that could increase your cash
value and death benefit or reduce your premium. These items are not
guaranteed*. Your costs or benefits could be higher or lower than those
illustrated, because they depend on the future financial results of
the insurance company. With variable life, your values will depend on
the results of the underlying portfolio of investments.
Some figures are guaranteed* and some
are not. Remember that the insurance company will honor the guaranteed*
figures, subject to its financial strength.
If your policy is a variable life policy,
be sure that the interest rate or rate of return assumed is reasonable
for the underlying investment accounts to which you choose to allocate
your premiums. It is important to keep in mind that an illustration
is not a legal document. Legal obligations are spelled out in the policy
Here are additional questions to ask about the policy
Is the illustration up to date? Is it based on current experience?
Is the classification shown in the illustration appropriate for
me (i.e., smoker/non-smoker, male/female)?
When are premiums due annually, monthly or otherwise? Which figures
are guaranteed* and which are not?
Will I be notified if the non-guaranteed* amounts change?
Does the policy have a guaranteed* death benefit, or could the
death benefit change depending on interest rates or other factors?
Does the policy pay dividends or provide for interest credits?
Are those figures incorporated into the illustration?
Will my premiums always be the same? Is it possible that the premium
will increase significantly if future interest rates are lower than
the illustration assumes?
If the illustration shows that, after a certain period of time,
I will not have to make premium payments, is there a chance I could
have to begin making payments again in the future?
Is the premium level illustrated sufficient to guarantee* protection
for my entire life?
Here are a few tips to keep in mind when purchasing a life insurance
Take your time. On the other hand, don't put off an important decision
that would protect your family. Make sure you fully understand any
policy you are considering and that you are comfortable with the
company and product.
After you have purchased an insurance policy, keep in mind that
you may have a "free-look" period usually 10 days after
you receive the policy during which you can change your mind. During
that period, read your policy carefully. If you decide not to keep
the policy, the company will cancel the policy and give you an appropriate
refund. Review the copy of your application contained in your policy.
Promptly notify us or the company of any errors or missing information.
Review your policy periodically or when your situation changes
to be sure your coverage is adequate.
Here are some additional items to consider when you are selecting
a term or permanent policy:
What happens if I fail to make the required payments?
If you miss a premium payment, you typically have a 30- or 31-day
grace period during which you can pay the premium with no interest
charged. After that, the company can, with your authorization, draw
from a permanent policy's cash surrender value to keep that policy in force
as long as there is sufficient cash surrender value.
In some flexible premium policies, premiums may be reduced or skipped
as long as sufficient cash surrender values remain in the policy. However,
this will result in lower cash surrender values.
What if I become disabled?
Provisions or riders that provide additional benefits can be added
to a policy. One such rider is a waiver of premium for disability.
With this rider, if you become totally disabled for a specified
period of time, you do not have to pay premiums for the duration
of the disability. This rider, if available, would require additional premium. Availability and specifics varies by carrier and state.
Are other riders available?
Another rider, called an "accidental death benefit", provides
for an additional benefit in case of death by accidental means.
"Child Rider" This rider, if available, would require additional premium. Availability and specifics varies by carrier and state.
A relatively new rider offered by some companies provides "accelerated
benefits," also known as "living benefits." This
rider allows you, under certain circumstances, to receive the proceeds
of your life insurance policy before you die. Such circumstances
include terminal or catastrophic illness, the need for long-term
care or confinement to a nursing home. This rider, if available, would require additional premium. Availability and specifics varies by carrier and state. This rider, if available, may require additional premium. Availability and specifics varies by carrier and state.
When will the policy be in effect?
If you decide to purchase the policy, find out when the insurance
becomes effective. This could be different from the date the company
issues the policy.
*Guarantees are based on the claims paying ability of the issuing insurance
Tom Maliskey, CSA
1137 Harrison Avenue, Ste 8A | Panama City, FL 32401
Phone (850) 785-8484
Fax (850) 769-7640
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