Which Premium Amount Should You Pay?
The amount of premium you should pay really depends on how you design the coverage.
Whole life policies build a large cash value and tend to have higher set premium. Current assumption universal life policies have flexible premiums and assume fixed interest rates of return. Variable universal life policies, in contrast, offer the greatest risk reward potential, allowing the cash value to be invested in mutual fund sub-accounts.
To build the most cash value in a policy, you want to pay the maximum allowed premium and select a level death benefit that helps minimize the amount of insurance you are buying. If you want leverage (death benefit), universal and variable policies illustrated with a high rate of return, increasing death benefit and low premium provide the highest payout at death. A policy with a level death benefit, for example $500,000, includes your cash value as part of the death benefit. A policy with an increasing death benefits would pay $500,000, plus any cash value.
Whole life and no-lapse universal policies offer guaranteed death benefits. However, the policies will have a higher premium offering less leverage.
The Bottom Line
When designing permanent life insurance coverage, the right premium really comes down to why you are buying the coverage.
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