Types of Life Insurance Policies

There are two different forms of life insurance policies that are available to individuals; term and permanent contracts. Each has its own benefit for individuals depending on one’s current needs and goals.

Permanent Life Insurance

Permanent life insurance appeals to many individuals as the policy covers until the insured’s death. Therefore, because of this key feature, permanent life insurance policies typically do not expire and are not renewed because you are covered for life. This is vital for estate planning and family financial obligations.

There are several subtypes to permanent life insurance including universal life insurance and whole life insurance. Each subtype carries its own benefit for the insured depending on the needs of the individual such as estate planning, insurance to provide for beneficiaries or building collateral.

Universal Life Insurance

Universal permanent life insurance provides the most flexibility than any other permanent life insurance and is a combination of insurance and investments. Because of this combination universal life insurance is usually referred to as an interest rate sensitive account. The value of the account if determined by the total investments included minus the monthly expense deductions.

Policy owners are able to choose from different investment options as well as choose between the costs of insurance selections and death benefit options. These choices are make this type of permanent life insurance so flexible in that it can adapt to the needs of the insured. Since this policy is a form of permanent life insurance it is an essential part of estate and tax planning.
This policy contract offers a choice of yearly renewable term (YRT) costs or level cost of insurance (LCOI). The policy owner can choose a level amount equal to the face amount of the policy or the face amount plus the cash value that has accumulated under the policy.

Whole Life

Whole life permanent insurance is designed so that the premiums costs remain the same and are paid continuously over the insured’s lifetime. However, certain contracts may implement a limited payment whole life policy, where the premiums are paid over a specific period of time or up to a certain age. The death benefit to be paid to the named beneficiary is the policy’s face amount.

Not only can this type of permanent policy provide financial security to your beneficiary through the death benefit, but in the initial policy years the insured can pay more for the coverage than required which will build up cash reserves. This reserve amount will be carried over to each premium payment and therefore create a compound growth on savings. Insured individuals can choose to surrender the policy in order to receive the cash value or they can choose to remove the cash value as a loan against the policy.

Term Life Insurance

Term life insurance provides life insurance for a set time frame which is available for 1, 5, 10, 15, or 20 years. It carries the same amount of coverage options except is created only to cover for a specific period of time. Individuals choose this type of term insurance in order to protect themselves during times of heavy financial obligations. For instance, a person may choose to purchase term life insurance for 25 years in order to cover their mortgage term while they also have children attending university institutions.

Alternately, rather than purchasing for a set year term, one can purchase term life insurance up to a specific age (generally up to 65 years old). Should the insured die within the set period or before the set age limit, the death benefit will be paid to the named beneficiary according to the settlement option selected.

Advantages for the insured offer lower initial premiums and is designed to provide affordable insurance for those with a lower annual income flow. It can be purchased with a single premium or in a series of premium payments set to the insured’s preference of monthly, semi, or annually.