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Classes of Life Insurance Policies

Terms in this set (16)

As the name implies, permanent life insurance is designed to provide life insurance protection for the insured's entire life. Coverage is provided until the insured dies or reaches age 120, whichever comes first. (Note that policies issued before 2009 may mature when the insured turns 100.) As long as premiums are paid, the insurance stays in force, and (in most cases) is guaranteed to pay the policy face amount. If the insured is still living at age 120, the policy matures, and no more premiums are owed. The insurer pays the face amount to the policyowner.

An important feature of permanent life insurance is the level premium. Once the policy is issued, premiums remain level for the full duration of policy coverage.

Another distinguishing feature of permanent life insurance is the accumulation element within the policy, known as the cash value.

Cash values grow over the life of the policy. In a standard whole life insurance policy, the growth of cash values is designed to equal the policy face amount at the insured's age 120.

The policyowner fully owns the cash value and is allowed access to it while the policy is in force, thus providing what is called a "living benefit." However, the cash value is also an essential part of the death benefit. If the policyowner borrows from the cash value while the policy is in force, the death benefit is reduced by the outstanding loan balance (plus accrued interest) at the time of the insured's death.

The cash value plays an important role in allowing permanent life to feature a level premium through the insured's entire life. This is more fully explained in a separate lesson