An umbrella term for life insurance plans that do not expire (unlike term life insurance) and combine a death benefit with a savings portion. This savings portion can build a cash value – against which the policy owner can borrow funds, or in some instances, the owner can withdraw the cash value to help meet future goals, such as paying for a child’s college education. The two main types of permanent life insurance are whole and universal life insurance policies.
Permanent life insurance policies enjoy favourable tax treatment. The growth of cash value is generally on a tax-deferred basis, meaning that you pay no taxes on any earnings in the policy so long as the policy remains active. Provided you adhere to certain premium limits, money can be taken out of the policy without being subject to taxes since policy loans generally are not considered taxable income. Generally, withdrawals up to the amount of premiums paid can be taken without being taxed.
Permanent policies are best used to incorporated permanent coverage with estate planning, paying off final expenses and to provide for a surviving spouse. In some cases the tax advantages of permanent policies can be used successfully as an investment opportunity.
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