Permanent vs. Term
When choosing life insurance coverage, you may wonder which type is more appropriate for your situation. During life stages, you will probably review and update your insurance coverage, as your needs change. There are two basic types of coverage-permanent (sometimes referred to as cash value) and term life insurance. Let's take a closer look at the short- and long-term benefits of each.
Permanent Life Insurance
Permanent life insurance helps provide financial security for surviving loved ones upon the death of the insured, and also builds cash value for the policyholder. Premium payments first pay the cost of the policy coverage, including the expenses and mortality factors of the insurance company. Then, the insurance company invests any remaining amount in order to build the cash value of the policy. Permanent life insurance combines protection with cash value assets and earnings accumulate over the life of the policy, and the policyholder can generally access these funds for any purpose.
Some permanent policies provide policyholders with nonguranteed dividends, which are the result of favorable mortality experience, investment results and expense savings that result in a surplus for the insuring company. Dividends can be taken in cash or used to pay future premiums or to purchase additional life insurance coverage, but are not guaranteed