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What are the factors to consider while purchasing permanent life insurance?

Wednesday, January 11th, 2012

The most basic form of permanent life insurance provides coverage through your lifetime and is more expensive compared to the term life insurance, which offers coverage only for a stipulated period of time. However, there are quite a few factors that you will need to consider before purchasing permanent life insurance. Permanent life insurance premium includes a savings component as well, which will accumulate over a period of time. Different types of permanent life insurance policies offer different terms when it comes to the two parts of the premium and that is why you must make a sound choice after due diligence.

The premium in case of permanent life insurance may or may not be constant throughout. For example, it could be fixed in case of normal whole life insurance but in case of universal life insurance, you will have the choice of adjusting the premiums along with the death benefits. You will have to decide whether you need flexibility with the premium and death benefit or whether you want to seal it once and for all.

Another factor that you need to consider is regarding the investment component of your permanent life insurance policy. The cash value is available for you to withdraw when you close the policy or at the time of receiving death benefits. However, you can also choose to invest the cash value by taking up variable life insurance. So, the cash value on the policy isn’t idle but is making more money for you over a longer period of time. You will once again have to consider the factor of personal choice or resorting to the recommendations of the insurance provider. For example, you can choose where your cash value is invested. Usually it is invested in stocks, bonds and other financial instruments. You can decide whether your cash value is entirely invested in the more volatile stocks that could give higher returns or in bonds which give steady or lower returns.

One of the drawbacks of permanent life insurance compared to term life insurance is that the cost might be higher, although you get steady premiums and lifelong protection. So, you will need to go for a policy which you can afford and where the death benefit and investment too could fulfill your family needs when required. An important factor to consider is the approval process which tends to have tougher standards.

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