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Tips to Buy Permanent Life Insurance (Part 1)

Money Girl helps you understand if permanent life insurance is right for your situation.
By
Laura Adams, MBA
5-minute read
Episode #312

Types of Permanent Life Insurance

The 3 most common types of permanent life insurance are whole, universal, and variable. We’ll cover whole life in this episode and save universal and variable for part 2 of this series.

With whole life insurance, you pay a fixed annual premium, get a guaranteed death benefit, and a guaranteed rate of return on your cash value. This is the most straightforward type of permanent life policy—but it’s also the most expensive.

The reason whole life costs more than other types of term or permanent life products is because the premiums can never be increased throughout your life. Statistically, your chances of dying are very low when you’re young and healthy, and increase as you get older. So the product must be priced as if you’re going to live to a ripe old age.

That means in the early years of a whole life policy, the premiums are much higher than you’d pay for other types of life insurance. After the insurance agent receives a commission, a portion of your premium goes into conservative, fixed-income investments. That’s how the insurer generates a guaranteed return for you.

After a set period of time, you have some flexibility with the cash value in a whole life policy. For instance, you may be able to borrow against it or even cancel the policy and cash out an amount known as the surrender value. However, the longer you own a whole life policy the greater your total return will be.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.