Life Coverages
Permanent Whole-Life
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Permanent life insurance is a term sometimes used for life insurance, such as whole life or endowment, where the sum assured is due to be paid out at the end of the policy (assuming the policy is kept current) and the policy accrues a cash value.
This is contrasted with Term life insurance where insurance is purchased for a specified period (such as 1 year, 5, 10, or 20 years) and a benefit is only paid out if the insured dies during this period.
A commonly used tactic is to utilize the slow, steady, growth within the cash value of permanent life insurance as a conservative savings strategy to hedge against the risk of the market.
A permanent whole-life policy will remain in force during the entire life of the insured as long as the premiums are paid. These policies also have paid-in-full options and fixed guaranteed premiums. The monetary value can also be used as collateral for loans or surrendered for cash value. The policy ceases should the total value is surrendered.
Term
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Term life insurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
Because term life insurance is a pure death benefit, its primary use is to provide coverage of financial responsibilities for the insured or his or her beneficiaries. Such responsibilities may include, but are not limited to, consumer debt, dependent care, university education for dependents, funeral costs, and mortgages.
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Single Premium Annuity
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With a "single premium" or "immediate" annuity, the "annuitant" pays for the annuity with a single lump sum. The annuity starts making regular payments to the annuitant within a year. A common use of a single premium annuity is as a destination for roll-over retirement savings upon retirement. In such a case, a retiree withdraws all of the money he/she has saved during working life in, for example, an Individual Retirement Account (IRA) or even permanent whole-life surrender proceeds, and use some or all of the money to buy an annuity whose payments will replace the retiree's wage payments for the rest of his/her life. The advantage of such an annuity is that the annuitant has a guaranteed income for life, whereas if the retiree were instead to withdraw money regularly from the retirement account (income drawdown), he/she might run out of money before death, or alternatively not have as much to spend while alive as could have been possible with an annuity purchase.