What is Permanent Life Insurance?
Permanent Life Insurance is an umbrella term for life insurance that does not expire (unlike term insurance that usually has a set time period).
The two main types of Permanent Life Insurance are Whole Life Insurance and Universal Life Insurance. They 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.
Permanent Life Insurance policies especially Whole Life (due to the greater cash buildup) enjoy favorable 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.
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