Types of Permanent Life Insurance Explained
Learn what types of permanent life insurance there are and if one is a good fit for you
Thinking about death is hard — preparing for it can be even harder. But purchasing permanent life insurance may help ensure that you leave your loved ones in a good position after you pass. This informational guide on types of permanent life insurance can help you consider all options as you start preplanning.
What is permanent life insurance?
Permanent life insurance, often called “whole life insurance,” refers to any insurance plan that remains active for the duration of your life and provides a death benefit to loved ones after your passing. Most permanent life insurance plans also accumulate cash value over time and allow policyholders to take loans out of the accumulated cash — although failure to pay back the loans typically results in a deduction from the death benefit.
Permanent life insurance differs from term life insurance, also known as pure life insurance, which only pays death benefits to beneficiaries if a death occurs during a specified period of time. This period typically ranges between 1 to 30 years, depending on the policy. Because term life insurance is temporary, you have the option to renew it, terminate it, or convert it to a permanent coverage policy if you are still living when the period expires.
What types of permanent life insurance are available?
Broadly speaking, three types of permanent life insurance exist: traditional whole life, universal life, and variable universal life.
Traditional whole life
In this form of permanent life insurance, both your death benefit and the premium you pay will remain the same throughout the duration of the policy. According to the Insurance Information Institute, insurance companies are able to keep the premium level by charging a higher amount than what’s needed to pay claims in the early years of the policy. They invest the money and use it to supplement the premium to help pay the cost of life insurance for older people.
“By law, when these ‘overpayments’ reach a certain amount, they must be available to the policyholder as a cash value if he or she decides not to continue with the original plan,” the Insurance Information Institute says. “The cash value is an alternative, not an additional, benefit under the policy. In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product — universal life insurance and variable universal life insurance.”
Universal life insurance
A portion of the premium you pay on universal life insurance is put toward cash savings, while the remainder is put toward the death benefit. This cash savings account will accumulate interest over time, tax-deferred. The cash component allows you to temporarily stop paying premiums in an emergency as long as the cash value can cover the cost of the insurance. You can usually take tax-free loans against the cash value and sometimes adjust the death benefit over time.
Variable universal life insurance
Like universal life insurance, variable universal life insurance includes a cash savings component, but you have the option to invest some of it. This gives you more control and potentially higher returns. The final earnings can be allocated either toward your premiums or death benefits.
If you make wise investment decisions, you can take advantage of significant tax-deferred earnings, but if you choose riskier methods and the market turns south, the significant drop in account value could force you to pay additional premiums just to keep your policy active.
Great Western Insurance Company permanent life insurance
Preneed Funeral insurance
Preneed Funeral insurance, also known as burial insurance, is a type of permanent life insurance that only covers your funeral expenses. It’s purchased through a funeral home, which becomes your insurance beneficiary. You attend a preplanning appointment with your funeral home director, where you choose every element you want included in your funeral service. The funeral home director totals the costs, and that amount is the basis for your Preneed Funeral insurance plan with Great Western Insurance Company (GWIC). It also holds that rate for the cost of your funeral, regardless of inflation. Upon your death, the funds are given to the funeral home to pay for your funeral, and your family is not required to pay anything extra.
Preneed insurance “gives the family and survivors the guidance that they need and want in holding their loved ones’ funeral,” said Chad Iverson, executive sales manager at Great Western Insurance Company.
GWIC’s Preneed insurance plans were “designed by funeral home directors, who were very knowledgeable about what families needed upon the death of a loved one,” Iverson said.
GWIC offers two Preneed insurance plans: Voyage and Course. Both products offer a favorable growth rate, a variety of payment structures (Single Pay, One-year, Three-year, Five-year, and Ten-year payment plans), and a free 30-day trial. The premiums will never increase, and no prospective policyholders will be turned down because of their health status. To learn more, visit the Preneed Funeral insurance page.
Final Expense insurance
Final Expense insurance not only covers the costs of your funeral service, but it also covers any expenses your loved ones may face following your passing. These can include outstanding medical or credit card bills, estate taxes, legal fees, and living expenses. However, it doesn’t retain preplanned funeral costs at present-day amounts, and you’ll need to thoroughly list your wishes for how you want to be remembered.
GWIC offers two Final Expense Whole Life insurance products: Guaranteed Assurance and Assurance Plus. Guaranteed Assurance requires no underwriting or answering of health questions to purchase. Assurance Plus is designed for those in good health and gives the policyholder a 25% increase of the full death benefit upon answering three medical questions. Specific details can be found on the Final Expense insurance page.
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* The Guaranteed Assurance plan is not available in the state of Washington.
** The Accelerated Death Benefit rider is not available in the state of California.
Your benefits and premium will vary depending on the plan selected. Plan availability may vary by state. This is a solicitation of insurance and an agent may contact you.
Policy forms: FE-FB-0515, FE-FB-0515 FL, FE-FB-0515 ND, FE-FB-0916 CA, ICC15-FE-FB-0215, FE-GB-0515, FE-GB-0515 FL, FE-GB-0515 ND, FE-GB-0916 CA, and ICC15-FE-GB-0215