Permanent life insurance tips from Mango's blog

When considering the various financial commitments of an individual, perhaps one aspect that is rather baffling and has been received with mixed feelings is life insurance. The primary purpose is to compensate for any income that is lost if an individual dies.

Needless to say, this only would apply for a person who is managing a family’s finances solely. Having life insurance would ensure that the family can continue to have an income despite the passing of the person who is financially responsible. Thus, life insurance is liable and appropriate to only certain individuals. Following retirement, if a person is entitled to pension payments, life insurance may not be appropriate as well.

There are two types of life insurance, term life insurance as well as permanent life insurance. Term life insurances are fairly simple. The person being insured has to make periodic payments which will result in the person being entitled to a financial compensation in the event of his death. If you cease making payments and cancel the policy, you will not be covered and any payments that have been made will not be refunded.

Permanent life insurance is a little more complex. Here compensations for the premium paid are divided into three parts. One is given to the beneficiary of the insurance. Another part is considered a miscellaneous payment for overheads and a final payment is made as an investment to a separate account. The investment account will be entitled to a percentage of interest as well which will be credited annually. This is a more secure form of insurance however it is certainly more expensive.

Permanent life insurance can be further divided into two types, a whole life and a universal life policy. Whole life policies are fairly simple where premiums remain constant and maybe paid over a fixed period of time depending on how much the person who is being insured can afford to pay monthly. The investment (as aforementioned) of a whole life policy can act as a loan as well and can be retrieved by the person being insured if he wishes to do so. This works similar to a loan where the investment must be returned with interest.

A universal life policy on the other hand provides more flexibility as money can be swapped from the main compensation to the investment and vice versa. With whole life, as aforementioned payments are constant and straight forward. The percentage of the premium for each type of payment is not acknowledged. With Universal Life, the amount for each section of payment can be assigned and adjusted based on the requirement of the insured.

Another more interactive and somewhat risky type of life insurance is referred to as “variable life”. Here, the cash payment can be maintained in a different account and can be invested into a variety of options via the insurance company such as stocks and other investments. The person being insured has to take responsibility in case the money is lost or decreased due to negative performance in the market, and will have to compensate by paying extra to the insurance company to keep the policy active. Alternatively, the investment can pay off resulting a larger cash value to be paid out if the insured passes away.

The cost of the two primary types of life insurance, permanent and life insurance can dramatically vary considering the distinctive differences specifically with life insurance. However, considering the various costs associated with permanent life insurance in comparison to term life insurance, permanent life insurance can be a lot more expensive, typically even up to 10 times.

While you may have gone through the trouble of reading the specifics of permanent life insurance above and while there are numerous benefits as well as security, in most cases, analysts usually recommend term life insurance policies for numerous reasons. The most obvious factor is the high cost. Additionally, there is fees associated with the policy that can amount to a large amount and will not be compensated for. Permanent life insurance policies are usually sold through middle men who take an added commission which increases the cost further. The ideal solution would be to invest in term insurance and if you are looking to build up residual income via investment, you may do this separately, via shares or mutual funds.

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By Mango
Added Nov 1 '11

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