While you are in your prime-earning years, term life insurance is critical because it provides a large amount of coverage at a low price. That is particularly important when your children are younger and expenses are greater to ensure your family is taken care of should you die unexpectedly. But it’s equally important to have permanent life insurance too.
By design, term life insurance only lasts for a set amount of time, typically between 10 and 30 years depending on the policy. Also, many term life policies expire when you reach a certain age. At that time, to maintain your protection, the policy either has to be renewed, often at a higher rate, or you may be able to convert it to a type of permanent coverage life insurance. So what does permanent coverage offer?
Permanent Life Insurance Defined
Unlike term life insurance, permanent life insurance does not expire — but that’s not its only benefit.
Related: Choose the Life Insurance That's Right For You
With permanent life policies, your premium will never increase. And, by purchasing permanent life insurance coverage as early as possible, you will lock in a lower rate that carries through the rest of your life. Many permanent life policies also build cash value over time. When you invest in a permanent policy, every premium payment you make builds a cash value that grows tax-deferred at a stated crediting rate. That cash value can then often be borrowed against or surrendered if necessary to apply to expenses later in life such as college tuition, home improvement projects, and retirement.
Types of Permanent Life Insurance Coverage
While all permanent policies provide coverage for life, not all policies are created equal. Here are some of the most common types of permanent life insurance:
Whole Life Insurance is the most popular permanent life insurance option. It provides permanent coverage with premiums that never increase. Many whole life policies also provide a guaranteed growth rate, so there are no surprises when it comes to building cash value over time.
Universal Life Insurance is another popular form of permanent life insurance, but unlike whole life insurance, universal life premiums may change. However, these policies do have a maximum premium, so you’ll never pay over a specified amount. Universal life can provide higher returns on your cash value depending on the market, which makes this option a little riskier than a whole life policy. The good news is there’s a guaranteed minimum annual return. Because they involve risk, universal life policies also tend to be less expensive compared to similar whole life policies.
Variable Life Insurance provides more flexibility than whole or universal life. Depending on the policy, your premiums may stay static, or they can vary. With variable life insurance, you determine how to invest your cash value from a set of options similar to mutual funds.
Indexed Universal Life Insurance also offers flexibility — policies typically come with a minimum and maximum premium payment, and you can choose to pay any amount in between. As you build cash value, you can also elect to use those earnings to pay your premiums. For these policies, cash value grows based on the performance of indexes like the S&P 500, and you are guaranteed a minimum annual return.
Variable Universal Life insurance works similarly to indexed universal life. You choose how much you want to pay between the minimum and maximum premium and you can use cash value to pay premiums if you so choose. The difference is that variable universal life lets you choose how you want to invest your cash value, selecting from a set of options similar to mutual funds.
Guaranteed Universal Life Insurance is a combination of term and whole life insurance. Unlike term insurance, guaranteed universal life remains in force until your death. However, it does not offer a guaranteed cash value growth rate. Guaranteed universal life is more expensive than term life, but less expensive than a whole life. Many of these policies also provide an option to lower your death benefit as your needs change.
Final Expense Coverage is designed to help cover burial and other end-of-life expenses. These policies are considered permanent because they do not expire until death, and they usually don’t require a medical exam. However, they are expensive because the insurance company is taking a much higher risk. These policies also have a lower benefit, typically around $50,000 or less.
AAFMAA Can Answer Your Questions About Permanent Life Insurance
With a variety of permanent life insurance policies designed specifically with servicemembers and Veterans in mind, AAFMAA can help you determine which type of policy is best for you and your family. AAFMAA’s permanent policies also come with a 100% money-back guarantee throughout the life of the policy, a Long-Term Care Settlement Option, and our exclusive survivor assistance services. Contact one of our Life Insurance Specialists for more details.