Permanent
insurance
Unlike term insurance, permanent insurance offers a living
benefit to the insured called cash value. The carrier sets
aside the balance of the premiums necessary to cover all
policy expenses as reserves. These reserves are invested
and the net earnings are distributed back to the policyholders
in the form of cash values. The insured can use the cash
value to finance certain needs such as emergencies, university
education or retirement.
The cash value
and death benefit of a permanent life insurance policy are
mutually exclusive, that is, if the insured dies while the
policy is in force, the designated beneficiaries receive
an amount called the death benefit. However, if the insured
surrenders the policy to the insurance company for its full
cash value at any point, the death benefit ceases to exist.
The death benefit proceeds are made up of the underlying
policy cash value and the pure insurance coverage.
Below are examples
of permanent insurance. They differ primarily in the way
premiums are paid by the policyholder and invested by the
insurance company.
1. Whole Life
Insurance
Its key features are:
Disability
insurance
Total or permanent disability can cause severe financial
hardship because most of our expenses will still continue.
Although health insurance provides help with the expenses
of an illness or injury, it does not replace lost income.
Only disability insurance can do that.
