Understanding Permanent Life Insurance

Unlike Term Life Insurance, which promises a lump sum payment as the death benefit for a limited period of time, Permanent Life Insurance lasts for the rest of your life (except if premiums are not paid and it causes the policy to lapse).

The monthly premiums go toward both the policy’s death benefit and allowing the policy to build “cash value”. You can borrow funds against that cash value or, withdraw cash from it outright to help meet needs such as paying for your kid’s education or for covering unexpected emergencies.

One thing to remember is that there’s a waiting period after the purchase of a permanent life policy when access to the savings portion is not allowed. This allows for sufficient funds to accumulate. Money may also be taken out of the policy without being subject to taxes because policy loans usually are not considered taxable income. Generally, withdrawals up to the sum total of premiums paid can be taken without being taxed.

Permanent life insurance policies enjoy favorable tax treatment. The growth of the cash value is generally on a tax-deferred basis, meaning that the policyholder pays no taxes on any earnings as long as the policy remains active.