Types of Life Insurance


When it comes to Life Insurance there are two major categories which are Temporary and Permanent. While there are 100's of carriers who offer all types of products the majority will fall within one of the above categories.

First let's cover TEMPORARY coverage.

Generally there is one type of temporary life insurance coverage in the form of Term Insurance.

Term Insurance: Designed to last for a set period of time usually 10, 20, 30 year term(s). Will payout Face Amount in the event of death during the term period. Can also include living benefits such as advance payment of death benefit in the event of critical illness or disability.

There are many types of term plans but in general coverage of this nature will be the most economical as far as premium for Face Amount value.

Disadvantages can be that after the term has expired if insured would like to renew coverage premiums are going to be a higher. In some cases 2 to 4 times the original premium.

Best for long term financial obligations such as mortgages or replacing lost income.

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Now let's talk about the two major categories of Permanent Life Insurance Coverage.

The two are Whole Life Insurance and Universal Life Insurance. Main difference with permanent insurance is it is designed to last you whole life regardless of when you start the contract.

Whole Life: While there are many types of Whole Life plans they traditionally will have level premiums and a level death benefit. Which means the premium do not go up as you get older and the death benefit stays the same even if you live to 105. Whole Life plans will usually include term riders for set periods and additional living benefits.

How does the insurance company keep premiums level? They charge higher then in necessary in the early years then what would be needed to pay claims. They then invest that additional money to pay for the more expensive premiums in the advance years of the policy.

The additional funds obtained from the investments must be made available to the insured as the surrender value if they choose no to continue with the original plan.

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Universal Life: Around the 1970's there came a new twist to the Whole Life concept which would provide more flexibility. Universal policies feature an adjustable premium where you have a minimum that needs to be meet. You can "over pay" over the minimum if your financial situation allows and once enough cash value has accumulated in the savings vehicle you can decrease premium payments, or stop them all together, if your financial situation was to take an abrupt change. Stoping payments does stop the savings accumulation so your policy can lapse with out attention. This is one of the key reason you want to have good agent to advise on changes.

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