Permanent life insurance is similar to term except they do not expire and they include a death benefit with a savings portion in the policy. The policy will build cash value as the owner pays premium fees over time. There are two types of permanent life insurance and those are Whole and Universal life policies. It takes time for cash value to accumulate but when it does the insurer is entitled to living benefits as needed.
Dividends are a type of living benefit. They are invested portions of money that has gained value over the years. You can now get money for this in the form of checks or one lump sum to take care of yourself in the event of terminal illness or other unforeseen circumstances. Dividends are a return on premiums therefore are considered passive income and will not be taxed. They can also be used to purchase additional coverage without proving insurability in most policies.
The nonforfeiture benefits are basically a type of insurance on your insurance. In the event that you cancel your policy or it lapses after being in affect for so long, you get something back. You do pay for the service when you open the policy. It is an option but without it, if you have hard times and cancel or lapsed, you would get nothing. With this option you can also still get lowered benefits with some policies.
The settlement options are basically how your policy will pay the benefits. This can be installments or in a lump sum. There is also an option to pay interest over time. Some settlement options will allow the insurer to hold the proceeds and pay the beneficiary interest until death.
All of these living benefit options are important. Insurance is a cushion to those still living because it creates a reliable plan for those that will be responsible for the final arrangements.
Dearborn Financial Publishing. Principles of Retirement Planning; Chicago: Random, 1999
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