What is it?

Permanent life insurance is distinguished from term  insurance in several ways. While term insurance provides protection only for a specific initial period of time, permanent insurance can provide protection for your entire lifetime, or in certain instances, up to a specific age -- at which point the insurer will pay the policy owner the cash value.  In addition, permanent life insurance policies can build a cash value -- money that you can borrow against and, in some instances, withdraw to help meet future goals, such as paying for a child's college education.

Note: You will usually have to wait a period of time after the purchase of your policy for sufficient cash value to accumulate for you to borrow against. If the unpaid interest on your loan plus your outstanding loan balance exceeds the amount of your policy's cash value, your policy and all coverage will terminate.

Permanent life insurance policies enjoy favorable tax treatment. Cash value generally grows on a tax-deferred basis, meaning that you pay no taxes on any earnings in the policy so long as the policy remains in force. Cash value may be taken out of the policy income tax free, as long as you adhere to certain premium limits so your policy is not considered a Modified Endowment Contract (MEC). Policy loans generally are not considered taxable income, and withdrawals generally can be taken up to the amount of premiums paid without being taxed.

The two general types of permanent life insurance policies are Whole Life, a dividend-paying policy,* and Universal Life, a flexible policy.

*Dividends are not guaranteed.

Who is the permanent life insurance for?
People who...

• May need life insurance for a long term.
• May be interested in accumulating policy cash value to provide funds for education, retirement or other future goals.
• Want to take advantage of the tax-favored treatment of cash value life insurance policies.

Benefits:

• Over time, permanent insurance may be more economical than term insurance since premiums do not increase with age and the policy can build a cash value.
• Earnings, and certain withdrawals and loans, may qualify for tax-favored treatment.
• Policy loans and withdrawals provide access to your cash value.
• If you cancel the policy, the accumulated cash value is yours to use as you wish. Surrender charges and taxes may apply.

Some Drawbacks to Consider:

• Permanent insurance is initially more expensive than term insurance.

Loans, withdrawals, and any unpaid loan interest generally reduce the death benefit, which could leave beneficiaries inadequately protected.

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