How to Define Permanent Life Insurance
Permanent life insurance, also known as "cash value" or "whole life" insurance, affords a policy holder many benefits not found in traditional term insurance. While there are many characteristics that define permanent life insurance, one constant is that the benefits paid are equal to the original face amount of the policy taken at the time it was established. Moreover, a main feature of permanent life insurance is to provide continued coverage from the date it is issued to the date of the insureds death, or for the "whole life" of the insured party.
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Instructions
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Offer a combination of insurance protection in the form of a death benefit and a savings or cash value element to the policy. The death benefit remains constant throughout the life of the policy and the cash value accumulates over time. This is accomplished by crediting a guaranteed rate of interest to the policy that enables its value to increase over time. The amount of cash value in permanent life insurance policy depends on the face amount taken, the premium paid and the length of time it has been in force. For instance, the larger the face value and shorter the premium period, the faster the cash value of the policy will increase.
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Set the premium period for permanent life insurance based on the assumption of a policy maturing at a presumed age that represents a whole life. The age in which a policy matures is designated to be 100 years. This is because living beyond the age of 100 is statistically insignificant as a predictor of life expectancy. At age 100 a policy is said to have matured to a value equal to its face amount. This means the insurance policy is completely "paid up" and no more premiums are due. In a case where an individual takes out a permanent life policy, and lives past the age of 100, the insurance company will issue a check to the policy holder for the full value of the policy.
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Allow policyholders to borrow funds, at a reasonable rate of interest, through the build up of cash value in whole life policies. These funds may be used for purposes such as paying off a mortgage, education for children and emergency financial needs. This loan does not have to be repaid while the policy is in force but does effect cash value growth and must be deducted with interest from the death benefit. Cash value can also be used as security or as a means of collateral because it is considered property belonging to the policy holder.
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References
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