What is Permanent Life Insurance

Permanent life insurance is the complete opposite of term insurance. Its permanence arises from its duration and not from the fact that the policy will continue regardless of context. Permanent life insurance is characterised by the cash value it bears. This type of plan provides coverage for the entire life span or up to age 100, whichever comes first. The essence of the plan is its duration however.

The earliest form of life insurance was term insurance. Term insurance is offered for limited periods and at reduced expenses. The idea of endowment plans and whole life insurance developed subsequently. Whole life plans were the dawn of permanent insurance, where coverage was virtually extended until death. To cater to the changing needs of clients, universal life insurance was eventually developed as an alternative to whole life plans. Permanent life plans can be distinguished by their longevity, monetary rewards and other living benefits like critical illness coverage. Some permanent life insurance plans even have annuities embedded in them.

Whole life policies bear cash values that accrue a couple years after the issue date. The cash value of universal life plans start to accumulate at inception. Another major difference between the universal life plan and whole life plan is transparency of premium. Whole life plans have bundled premiums. Premiums of the universal life plan are unbundled in the sense that you can determine where each part of the premium is allocated.

Whole life plans consist of dividend-paying and non-dividend plans. These plans are varied and have different benefits that are at the discretion of insurers. Universal Life plans include fixed and variable universal life plans. The main difference between these plans is the variability of investment and the death benefit. Generally, universal life insurance is a flexible type of insurance that offers premium flexibility.

Another major feature of permanent life insurance is the availability of non-forfeiture provisions. Since cash-values are available with permanent plans, the plan would not lapse automatically due to non-payment of renewal premiums. The client would have three non-forfeiture options with permanent insurance:
1) Automatic Premium Loan- This is an automatic deduction from the cash value as a result of non-payment of the modal premium.
2) Cash value surrender- Under this option, the policy would cease being in force and the policy owner would be paid the net cash value.
3) Reduced paid-up permanent insurance- If the cash-value is sufficient, it can be used as a premium to purchase a smaller amount of coverage that does not require further premium payments.

Permanent life insurance is a key component of life insurance that facilitates other aspects of financial planning. Forced savings, estate planning and emergency funds are enabled by this type of insurance. While temporary insurance like term plans and endowments are useful in certain contexts, permanent insurance creates added value for clients. Many permanent life insurance plans contain several optional supplementary benefits that are not available with temporary insurance.