Life insurance policy is a contract between the policy owner and the insurance company to pay up the sum assured and cash accumulated to the beneficiary in case of death, permanent disability or any other term that has been agreed upon. There is an unending debate over term life insurance and permanent life insurance. Each has its own pros and cons. While a term insurance covers a person only for a certain period of time, permanent life insurance covers the entire life. Both the policies pay the sum assured in case of death. The only difference is that, if the person does not die within the term, the policy owner or the beneficiary does not get anything in a term insurance. The entire premium paid would have gone for waste.
But, in a permanent life insurance policy or universal life insurance the person is covered for the entire life and when death occurs at any point of time, the sum assured is paid out to the beneficiary. In most cases, people go for term insurance policies because of permanent life insurance policy is costlier. For a premium of $ 5000 annually the sum assured or the face value of a term insurance is almost 3 times (this is a tentative figure) higher than that of a permanent life insurance policy. Or, in other terms the premium is minimally 5 times greater than that of the term insurance premium for the same sum assured. Again, it depends and differs from one insurance company to another.
In a permanent life insurance, there are 3 primary kinds of coverage; universal existence, whole existence and variable existence. All 3 types of policies provide lifetime coverage as long as the policyholder pays up the premium correctly. The way a premium is calculated for a permanent life insurance policy is totally different from that of term insurance. The premiums are always high, and there is a portion referred to as “cash value” which goes into investments to provide assured returns. The money value that gets accumulated is very low initially (the commission and processing fees are actually paid out of the premium paid by the policyholder). Then, after a few years the money value gets accumulated in higher proportion. This is when bonuses or dividends are paid to the policyholder. One advantage is that, the money value accumulated can be withdrawn at any point of time by the policyholder.
This could be considered an investment option with their insurance cover rather than an insurance policy. This is one main reason why the debate on the best insurance policy is always a little stronger toward the term insurance policy.
