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Should I buy a permanent life insurance policy?

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Permanent life insurance, also called whole life and universal life, is a life insurance policy with no expiration date. Where a term life policy has a well-defined expiration, permanent life will remain in force for as long as you live, as long as you keep the premiums up to date. This can be beneficial, both now and in the future, but it comes at a higher initial cost than a term life policy.

Term life insurance has lower premiums than a permanent life insurance policy. However, if you outlive the term of the policy and try to renew it, the money you saved initially is lost because the renewal cost will be based on your current age, which means you will be a much higher risk to the insurance company at renewal time. Permanent insurance costs more to begin with, but it has the advantage of maintaining level or near-level premiums for the life of the policy.

Permanent life insurance is useful while you are alive as well. Because a permanent life insurance policy includes a tax-deferred savings account, the money you invest into a permanent life insurance policy can later be utilized by making a loan to yourself of the accrued cash value of the policy. Since the money essentially belongs to you, there are no credit checks or collateral requirements, but if you fail to pay the money back into the account it will diminish the final payout of the policy.

Permanent life insurance is not meant to handle some types of situations, such as paying off a mortgage or leavings tuition funds for your kids to attend college. These things are best left to term life policies so that you can stop making the premiums when the term expires and the insurance coverage is no longer needed. Instead, permanent life insurance is meant to handle such things as your final expenses, leaving an inheritance for your children, or providing your widow with the money needed to move the family back to an ancestral homeland. As long as these are the goals you had in mind for your life insurance, then your agent is correct and permanent life insurance is the type you should invest in.

answered Apr 9, 2012 by anonymous
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