Permanent Life Insurance
The only reason to buy permanent life insurance is that you are going to hold this insurance for life.
By holding the "permanent life insurance for life," we mean for life. There are usually up-front charges which considerably impact the savings component. Eventually, the savings will begin to pay off, but it can take 10 to 20 years for things to begin moving your way.
So what are you really getting? Well, it works like this: part of your monthly payment pays for the actual life insurance (This will normally be close to the amount you'd pay for term life insurance). The rest of your payment (minus management charges; which are a fee over and above the cost of premium) is applied to the savings component. Therefore, in order to actually build savings, your premiums are higher than term life insurance by the amount of your savings contribution, plus fees to the life insurance company to 'manage' your money.
Now, if you want someone to manage your money, wouldn't you want a specialist? Maybe a bank?
Originally, the cash value that you built in your permanent life insurance was designed to continue to pay your premiums when you get older and premiums become REALLY expensive. This was a selling point because you banked money to pay high premiums to keep life insurance in force after retirement - when you don't make as much.
Another of the big selling points has been that you (as the life insurance policy holder) could access those savings if you need them. Sounds good, right? Well, it doesn't always work as planned. If you want to use those savings for something other than life insurance payments you will likely pay income tax on them; which negates any "tax shelter" status and could even push you into a higher tax bracket (with higher taxes).
Rules to borrow against a permanent life insurance plan can be very complicated, can cost interest, and what if you don't want to pay it back? It's supposed to be "your money" after all.
Life insurance companies make good money on these policies. There are generally incentives to life insurance agents to sell them. Insurers profit from people who buy these plans young and then drop them early.
For more information regarding life insurance check out the following pages: Life Insurance, Why do I need life insurance, How do I decide what I need, What types of life insure can I get, Permanent life insurance, Whole life insurance, Universal life insurance, Term life insurance, Other types of life insurance and don't forget to check out the How can I reduce life insurance costs page.
Permanent Life Insurance
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