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What's the Difference Between Permanent and Whole Life
Insurance?

Author: Ryan Patterson

Article:
Whole life insurance is a type of permanent insurance, and both
of these have terms lasting until the end of the insured's life,
as opposed to term life insurance, which, as the name suggests,
only covers the life of the insured for a specified term. Put
simply, permanent life insurance always pays out to the
beneficiary, because the end of its term is the death of the
insured; term life insurance only pays out if the insured dies
during the allotted time period. The former is
substantially—sometimes tenfold—more expensive than
the latter, but term life insurance renewal is often costly,
since at the end of the term the insured person is older and
therefore represents a higher risk. This is especially true of
life insurance for seniors, as one might imagine, since their
chances of payout are higher.

Whole life insurance, also known as cash surrender life
insurance, is considered a solid investment. Given consistent
upkeep, it accumulates value on a tax-deferred basis, just as an
education or retirement fund does. With whole life insurance,
the insured may use the policy as collateral, borrow against it
or even borrow from it—again, just as with a bank account.
If the insured borrows from it, say to build a dream retirement
home, the end cash payout obviously will be lower for the named
beneficiary/ies, unless the borrowed amount is repaid. And, if
the insured is unable to continue paying into the policy, then
just like a bank account, it might still have a payout to
beneficiaries, depending on when the payout is. The insurance
company providing whole life insurance also folds its dividends
directly into the policy (provided the company is profitable),
providing a secondary increase in value over time.

Another type of permanent insurance is variable life insurance.
Here, the life insurance policy is more of a stock portfolio
than a savings account, and its value varies with the value of
the investments chosen to support it. At the end of the
insured's life, the portfolio is paid out to the
beneficiary/ies; depending on the risk level of the chosen
investments, the benefit may either erode or grow over time.

With universal life insurance, the insured pays a base initial
amount, and then makes payments within a range set by the
insurance provider. This type of policy is usually less costly,
but it is important to understand that the range of minimum and
maximum payments may change over time, depending on the health
of the provider, its investments or other terms. Therefore, the
account requires more attention than other forms of permanent
insurance.

Finally, variable universal life (VUL) insurance is another
tax-free account in which terms and payments can vary as needed.
In it, flexible premiums may be invested in a variety of areas
and accounts, coverage may be increased or decreased, and
investments may be transferred between accounts without tax
ramifications. Because the policyholder retains more of the risk
than the insurance provider, VUL policies often have less costly
upkeep fees than many other types of policies. On the other
hand, it is also a combination of all of the flexibility
possible within the permanent life insurance category.

About the author:
Ryan Patterson is president of US Insurance Online, based in
Austin, TX. He graduated in 2000 from the University of Texas
with a combined business and computer science degree, and
started US Insurance Online in May of 2005 with fellow
entrepreneur Jim Waltrip. Visit http://www.USInsuranceOnline.com
for help shopping for insurance and for free insurance quotes.