Introduction:
Till the time we are alive, we fulfill every possible need of our family. But, have you ever thought about what will happen to your family when you are no longer there? What about the current lifestyle they are enjoying? Who will ensure that your family does not face any financial hardship in your sudden absence? Here comes the role of life insurance.
A Texas life insurance policy is a contract between an insurance company and an individual or family. The insurer agrees to pay a designated beneficiary a sum of money upon the policyholder's death. The named beneficiary receives the death benefit, which can be used for any purpose, such as providing financial security for a family or paying estate taxes or monthly bills.
There are two main types of policies offered by life insurance companies: term life insurance and permanent life insurance. Term life insurance provides coverage for a specific period, while permanent life insurance covers you for your entire lifetime.
Keep on reading the blog to know everything about permanent life insurance.
What is Permanent Life Insurance?
Permanent life insurance refers to a type of life insurance in Texas that offers lifelong protection to the people living in Lubbock, McAllen, and other parts of Texas. As long as you pay your premiums, the death benefit will be delivered to your beneficiaries upon your passing away.
Permanent life insurance has two main components – cash value and death benefit. The cash value is like an investment account that grows over time and can be used during your lifetime. You can withdraw the money, take a loan against it, or use it to pay your premiums. At the same time, the death benefit pays out a lump sum of money to your loved ones in the event of your death.
Types of Permanent Life Insurance:
There are two main types of permanent life insurance policies – whole life insurance and universal life insurance.
- Whole life insurance is the original type of permanent life insurance. With this type of policy, you will have level premiums, and the death benefit and cash value will stay the same throughout the policy's life.
- Universal life insurance is a more flexible type of permanent life insurance. With universal life insurance, you can increase or decrease your premiums and death benefit as your needs change over time.
Role of Mutual Life Insurance Companies:
If you have a participating policy from mutual life insurance companies, your policy will be eligible to receive annual dividends. A portion of the company's profits is shared with the policyholders in dividends. The amount of dividend you receive depends on the company's profitability, policy type and terms, and how long you have been a policyholder.
Dividends are paid out of the company's surplus, not from the premiums you pay. Dividends are not guaranteed and may be increased, decreased, or suspended by the company. Dividends can increase the death benefit and cash value of your policy.
Difference between Term and Permanent Life Insurance:
The basic point of difference separates the term and permanent life insurance policies. These points will make your choice easier to determine which one you should opt for:
- Period of Time:
The foremost difference between permanent and term life insurance is that term policies only provide coverage for a determined period, 20 years, whereas permanent life insurance offers lifetime coverage.
- Cash Value Component:
Permanent Life Insurance provides the privilege to policyholders to accumulate cash value over a period of time. This cash value can be used during the lifetime of policyholders in different ways as per their needs, whereas term life insurance doesn't have this provision.
- Death Benefit:
The death benefit is only payable in term life insurance if the policyholder dies within the specified period. However, the death benefit is expected in permanent life insurance whenever the policyholder dies.
- Policy Termination:
A policyholder can terminate their term life insurance policy and get the cash surrender value. In permanent life insurance, the policy can't be terminated by the policyholder. It only terminates when the death benefit is paid out or matures.
Tax Benefits of Permanent Life Insurance:
In both cases, the death benefit that the beneficiary received after the policyholder's death will be free of income tax. Apart from this, the policyholder enjoys some other tax benefits of permanent life insurance, which the term coverage doesn't offer.
- Permanent life insurance cash value grows tax-deferred. This means that you don't have to pay taxes on your policy's money each year.
- You can take a loan against your permanent life insurance policy. The loan is not taxable if you don't default on the payments.
- You can withdraw money from your permanent life insurance policy. The dividends or the surplus you receive are tax-free up to the number of premiums you've paid. Withdrawals above that amount are taxed as ordinary income.
Cost of Permanent Life Insurance:
Since the insurance provider is guaranteed to pay the death benefit, permanent life insurance policies tend to be more expensive than term life insurance policies. In addition, the cash value component of permanent life insurance also adds to the cost of the policy.
Permanent life insurance is a long-term investment. The sooner you buy a policy; the lower your premiums will be. The length of time you pay premiums and the size of your death benefit will affect the cost of your policy. If you want a larger death benefit or want to pay premiums for a more extended period, your premiums will be higher.
The type of policy you choose also affects the cost of your premiums. Whole life insurance policies have level premiums, which means your premium will stay the same for the policy's life. Universal life insurance policies have flexible premiums, so you can choose to increase or decrease your premiums as your needs change over time.
Your age, health, and lifestyle also affect the cost of your premiums.
The Final Word:
Now, after knowing almost everything, it's time to decide. It depends on your requirements and which type of policy you should buy. If you want coverage for a specific period, term life insurance will suffice your needs. On the other hand, permanent life insurance is the best option if you wish for lifelong coverage with additional benefits like cash value accumulation.
Whatever your decision, make it accurate and worthy of all the premiums you are going to pay. Before opting for any policy options, compare the homeowners insurance quotes to get the best and the most affordable policy for you.
