Permanent Life Insurance-how permanent life insurance works-universal, variable, whole life, universal life

Permanent life insurance is often referred to as cash value life insurance. The cash value is the dollar amount the policy owner can withdraw if they choose to cash out the policy before the insured's death.

Permanent life insurance pays a death benefit when the insured dies. Though it will not be cancelled by an insurance company due to the age or health of the insured, if the insured reaches a certain age-usually 95 or 100-the policy is considered "mature." The policy owner receives the cash value of the insurance policy and death benefits are no longer payable.

As long as the premium is paid, the insured's coverage continues.

The premium is applied to a death benefit and a cash savings account that can earn interest.

Various premium payment options are available including monthly, quarterly and annually.

The insured may sometimes borrow against the cash value portion of the policy, too. If the cash value is not paid back prior to death, the death benefit is reduced by the amount borrowed.

There are 3 common types of permanent life insurance:

1. Whole life
Whole life insurance has premiums that stay the same. Generally, the face values of these policies also stay the same.

2. Universal life
Universal life is a more flexible type of permanent life insurance policy. The policy owner can adjust the amount of the death benefit relative to the amount of cash value. The policyholder's premiums usually vary, too.

3. Variable Life
Variable life policies provide death benefits and cash values that are tied to the performance of a portfolio of investments. While cash value can fluctuate, there is a minimum guaranteed death benefit.

Variable life insurance is considered an investment product. The purchaser receives a prospectus that he or she should review carefully. These insurance policies are also subject to regulation by the Securities and Exchange Commission (SEC).