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Types of Life Insurance

There are several types of life insurance:

  • Term Life Insurance. Term Life Insurance provides a death benefit to the beneficiary should the insured die within the time period specified in the policy. It is the choice of those who do not have the means to afford the higher premiums of a permanent life insurance plan. If your financial situation changes, many Term Life Insurance plans can easily be converted into a permanent plan without needing evidence of insurability, which gives you flexibility. There are two types of Term Life Insurance:
    • Level premium. Level premium term life insurance offers a premium that remains the same over a specified period of time (for example, 5, 10, 20, 25, or 30 years). After that period the premium is subject to an increase.
    • Yearly renewable. Yearly renewable term life insurance initially offers a low premium that increases substantially as the insured gets older and, as the name suggests, the policy continues to be renewed. While the premium for this type of policy may be lower in the beginning than that of a level premium one, at the end the total cost of a yearly renewable policy will far exceed that of the level premium, which explains why it is the less popular of the two.

  • Whole Life Insurance. Whole Life Insurance provides permanent benefits to the beneficiary in the event that the insured dies. These policies accumulate a cash value to be used by of the policyholder on a tax-deferred basis. The cash value of a Whole Life Insurance policy can be affected by the insurance company's expenses, mortality experience, and investment performance. There are different reasons for an insured to extract the cash value of the policy, such as supplementing retirement income, for a cash emergency or purchase, for loan collateral, paying future premiums, modifying death benefits, etc.

  • Universal Life Insurance. Universal Life Insurance provides permanent benefits to the beneficiary in the event that the insured dies. The difference here lies in how the premiums are paid. A universal policy allows the holder to adjust his or her premium payments and death benefit over the life of the policy. The insurance company will set some boundaries on these adjustments monthly premiums must sustain a basic benefit amount and cover the cost of the policy monthly maintenance by the insurer. Like Whole Life Insurance, Universal Life Insurance policies accumulate a cash value that can be used by the policyholder on a tax-deferred basis. The cash value can be affected by the insurance company's expenses, mortality experience, and investment performance. There are different reasons for an insured to extract the cash value of the policy, such as supplementing retirement income, for a cash emergency or purchase, for loan collateral, paying future premiums, modifying death benefits, etc. Universal Life Insurance policies are best fit for those whose financial needs or status varies over time.

  • Variable Life Insurance. Variable Life Insurance provides permanent benefits to the beneficiary in the event that the insured dies. Like Whole Life Insurance, these policies accumulate a cash value that can be used by the policyholder on a tax-deferred basis. The value potential, however, is greater because the policyholder can decide how to invest the accumulated value of the policy by choosing from a list of stocks, bonds, and money market funds provided by the insurance company. This freedom to control your investment portfolio makes it the most expensive type of cash value insurance. On the other hand, many of the benefits of variable life insurance are wholly dependant on your ability to invest successfully, and you should be absolutely certain that you understand all implications before purchasing this type of policy. The cash value of a Variable Life Insurance policy is not guaranteed and can be affected by the insurance company's expenses, mortality experience, and investment performance, as in the other policy types. There are different reasons for an insured to extract the cash value of the policy, such as supplementing retirement income, for a cash emergency or purchase, for loan collateral, paying future premiums, etc.

  • Variable Universal Life Insurance. Variable Universal Life Insurance provides permanent benefits to the beneficiary in the event that the insured dies. It incorporates qualities from both variable and universal policy types.

  • Second-To-Die or Survivorship Life Insurance. Second-to-die Life Insurance policy insures the lives of two people, most often a husband and a wife. The death benefit is paid to the beneficiary once both individuals covered by the insurance policy die. Second-to-die Life Insurance can be obtained through a whole or universal life insurance policy. It often offers less expensive premiums than if the insured were to purchase two separate insurance policies. It is usually used for estate planning purposes by wealthy individuals who utilize the policy to pay estate taxes and preserve their net worth.


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