Not sure if a permanent no exam life insurance policy is right for you? Read below to learn more about what it is, how much it may cost you, and if it’s right for you and your family.
What Is Permanent No Exam Life Insurance?
If you’re considering life insurance, the first step toward purchasing a policy is understanding the different types which are available. If you’ve already checked out our page about term insurance and you’re curious about your other options, read on to find out what you need to know about the types and benefits of a permanent insurance policy.
Permanent vs. Term Insurance
Before we talk about the types of permanent policies on the market, there are a few key differences between permanent and term policies which really change the character and ultimate purpose of the coverage:
- Lifelong Coverage – As opposed to a term policy, which expires with no payout or cash value at the end of the term, a permanent policy covers the policy owner throughout all of his/her life without an unwanted adjustment in premiums. With a permanent policy, as long as you’re paying your premiums, you’re covered.
- Cash Value – Whereas a term policy provides only the death benefit and can lapse or expire with no value, a permanent policy can accumulate cash value over time. In fact, permanent policies are alternatively referred to as “cash value insurance.” More on this vital distinction later.
- Higher Initial Premiums – Because they are designed to cover the policy owner for his/her entire life, cash value policies are priced accordingly, but the premiums won’t go up as the owner advances in age. As a rule of thumb, expect permanent insurance to cost more than term insurance early on, but less in the long run if the term insurance were to be repeatedly renewed.
- Greater Flexibility – Over time, a permanent policy’s premiums, death benefits, and investment risks can be adjusted according to the policy owner’s current needs. While some term policies feature increasing or decreasing premiums and benefits over time, these figures are fixed and won’t be adjusted during the life of the term.
In short, permanent insurance 1) covers you for life, 2) combines the safety of protection with the reward of investment, and 3) allows you to make important adjustments along the way.
More on Cash Value
Whether you have term insurance or permanent, your policy has a “face value.” This is the amount of money is payable in the event of either your death or the policy’s “maturity.” However, should you surrender the policy or allow it to lapse (i.e. stop paying premiums), the policy’s face value is surrendered as well and is not payable.
Cash value, however, is positive equity which accumulates on a tax-deferred basis. It is what your policy is worth to you today, minus any penalties or fees associated with surrendering your policy early. This value can be wholly or partially surrendered for cash or converted to an annuity at any time, or it can be used to cover your premiums if your financial situation changes. You can also borrow money from your provider using your policy’s cash value as collateral. These loans typically come at fairly low rates and without significant restrictions or credit checks.
Just know since cash value builds over time throughout the life of the policy, you may have accumulated little or none should you surrender our policy early on. Furthermore, your cash value may fluctuate based on a number of factors affecting your company, such as investment success, mortality rates, or increased administrative costs.
Permanent Policy Options
Even after college tuition and the mortgage are paid off, you may want to ensure you have something to pass on to your children and grandchildren. You may also want to allow your spouse to carry on with the same standard of living if he/she outlives you by a number of years. These are great reasons to consider lifelong coverage over expiring term coverage.
Or perhaps, you’re interested in the ability to take greater risks with the investment of your premiums as the needs of your beneficiaries diminish over time.
These are just a few of the reasons you might be considering a permanent insurance policy. If these things sound attractive to you, it’s time to start exploring your cash value options.
Of the three main types of permanent insurance policies, whole (or ordinary) life provides the least flexibility, but the most predictable results and the lowest risk. A whole life policy guarantees a certain payout at the time of your death and a certain rate of return on your cash values.
Additionally, your whole life policy may include the opportunity to earn dividends from the company, which means the company may share favorable results with participating policy holders in the form of cash, lowered premiums, or increased benefits. Dividends are not guaranteed, and contributing factors include investment success, mortality rates, and management of operational costs.
Premiums are generally level for whole life policies. But what if you need a policy with a greater face value than you can currently afford? What if you’re concerned about sustaining your premiums through retirement when your income may be lower? There are a few options which may help:
- Limited payment policy – Premiums are higher than they would otherwise be, but are only required for a certain number of years. Once the policy is fully paid-up, the owner enjoys lifelong coverage with no further payments.
- Modified-premium whole life – The policy holder pays lower premiums for a specified amount of time, at which point the premiums are raised to a new level for the remainder of the policy.
- Graded-premium – Premiums will be modified through three or more levels, being raised at specified intervals until they become level for the remainder of the policy.
Whole life policies with small face amounts are usually referred to as final expense or burial life insurance policies, as the sole focus is paying for the funeral and funeral related costs.
Universal life insurance, also known as adjustable life or flexible premium life, allows you to change your coverage and adjust your premiums based on your current needs. If you have extra cash on hand, you can opt to pay higher premiums, and if money is tight, you can and pay less. Essentially, as long as you’re operating within the predetermined minimum and maximum set by the company, you have a great degree of flexibility on what you pay and when. This flexibility allows the policy owner to adjust coverage as needs change over time, as well as to make the most out of strong interest rates.
However, if you’re considering a universal life policy, it’s important to know your policy may either lapse or fail to accumulate cash value due to a number of factors, including administrative costs, poor investment performance, a change in mortality rates, or insufficient premiums. This means if you’ve adjusted your premiums and paid very little, you may be at higher risk of losing your policy or building little value.
That’s why more and more universal life insurance policy owners are choosing to opt for a plan with a “Secondary Guarantee,” (also known as a No-Lapse Guarantee). These guarantees ensure as long as you meet predetermined premium minimums, you won’t lose your policy due to an unfavorable market, a rise in administrative costs, etc.
A variable life policy is a form of universal life insurance allows you to allocate portions of your premium to a variety of different investments, such as bonds, common stocks, mutual funds, or blends of a number of investment vehicles. This is the highest-risk type of policy you can buy, but it also provides you with a great deal of autonomy in terms of risk and how your premiums should be invested.
Most variable life policies guarantee a minimum face value (i.e. minimum death benefit payout), but a guaranteed minimum for cash value returns is unlikely. Instead, the actual face and cash values of your policy will depend on how well your “special fund” performs. In an unfavorable market, variable life policies may end up worth less than a whole life policy would be for similar premiums. But if you choose the right investments in a strong market, you could enjoy a much greater return on your policy.
A cash value policy may not provide the same returns as other non-insurance based investments, but for the protections it provides in combination with investment flexibility, it may be the perfect balance for your family. While a term policy may be ideal if you just want to protect your family from time-specific expenses such as car, mortgage and tuition payments, a permanent policy is ideal if you’re looking for maximum control and lifelong coverage.
Ready to start comparing policies? Get a quote now to begin the process and see what rates you might be able to expect to protect your loved ones.