Choosing the right life insurance is one of the most important financial decisions you can make. However, figuring out what all the different types entail can be a little overwhelming. Term vs permanent, whole vs universal…how do you know which is right for you? Don’t worry—our team of experienced life insurance attorneys is here to answer, “What are the 4 types of permanent life insurance?” And if you haven’t yet, be sure to check out our articles discussing instant life insurance and explaining permanent vs term life insurance.
Key Takeaways
- Permanent life insurance lasts the insured’s whole life and can accumulate cash value.
- The 4 primary types of permanent life insurance are whole life, universal life, variable universal life, and indexed universal life.
- Choosing the right policy depends on your or your beneficiary’s financial needs, goals, and risk tolerance.
What Are the 4 Types of Permanent Life Insurance?
While there are more than four types of permanent life insurance, there are four primary types that are generally the most common. Just because these kinds are the most common doesn’t mean they’re the right kind for you. Consulting with an experienced life insurance attorney to discuss your or your beneficiary’s needs can help you feel more informed and comfortable about the type of life insurance policy you choose.
Whole Life Insurance: Stable and Predictable
Whole life insurance is the most traditional and straightforward type of permanent life insurance. With a guaranteed death benefit and a cash value component that grows at a fixed interest rate, this is a stable, predictable policy for those seeking consistency throughout the life of the policy. Another attractive feature of whole life insurance is premium stability, meaning monthly payments remain the same for the life of the policy.
Additionally, depending on the insurance carrier, some whole life policies can earn dividends that you can use to reduce premiums, increase the death benefit, or increase the policy’s cash value. While not guaranteed, dividends can supplement a policy’s financial benefits over time.
Universal Life Insurance: Premium & Coverage Flexibility
If you need more flexibility, universal life insurance may be for you. As the policyholder, you can adjust the premium payments and death benefits within certain limits. But it’s important to note that being able to make these changes is often heavily dependent on your financial situation. Individuals who anticipate changes in their income or financial obligations may find this a favorable policy because of its adaptability.
Similar to whole life policies, universal life insurance accumulates cash value over time. Here’s where the differences come in: universal policy’s cash value grows based on money market interest rates, which fluctuate. So, what makes universal policies flexible? Several features, actually. First, there’s the ability to increase or decrease the death benefit by adjusting premium payments.
Additionally, once enough cash value has accumulated, you can use these funds to cover premium payments. This feature can be of substantial worth should you fall into financial hardship. If you need to use the cash value to cover premium costs, staying aware of the policy’s value is essential.
Variable Universal Life Insurance: Risk & Reward
Where universal policies allow you to use the cash value to cover premium payments, variable universal allows the policy owner to invest the policy’s cash value into stocks, bonds, or mutual funds. But where there’s reward, there’s risk—while there’s the potential for significant growth, there’s also the potential that the policy’s value may decrease based on market performance.
Similar to traditional universal policies, variable universal policies also offer flexibility on premium payments. However, if you choose this policy, it’s essential to make sure you have the funds to cover insurance costs should market fluctuations cause your investments to underperform.
Indexed Universal Life Insurance: A Balanced Approach
Indexed universal life insurance is what you get when you combine elements of universal and variable policies. On the one hand, the cash value growth is based on a stock market index. On the other hand, the limits on gains and losses protect the policy owner from downturns while letting them benefit from positive market performance.
Which Permanent Life Insurance Policy Is Right for You?
Now that we’ve answered, “What are the 4 types of permanent life insurance?” we hope you’ve got a better grasp of the permanent life insurance options available to you. If you value stability and guaranteed benefits, whole life insurance may be right for you. Alternatively, if you need some flexibility in your premiums and benefits, universal could be the better choice. And if you’re willing to take a little risk to leverage investments, variable universal or indexed universal could provide the financial growth opportunities you’re looking for.
Protect Your Future with Sinclair Law Firm
Life insurance is too big of a decision to make on your own. Consulting with a life insurance agent can help determine which policy best meets your needs. Likewise, if your life insurance claim has been denied, taking on the insurance company on your own is an unwinnable task. The life insurance attorneys at Sinclair Law Firm have the expertise you need to navigate the complexities of a denied life insurance claim. We would love to advocate for you—get in touch today!