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Types of Life Insurance
The two main types of life insurance are permanent life insurance and term life insurance. Although both types of life insurance pay out a sum of money to a beneficiary after the policyholder dies, there are a few key differences in how they work.
Permanent Life Insurance
Permanent life insurance provides lifelong protection and accrues cash value. Some types of permanent life insurance include:
- Whole life insurance
According to Investopedia, "Whole life insurance is a contract with premiums that includes insurance and investment components. The insurance component pays a predetermined amount when the insured individual dies. The investment component builds an accumulated cash value the insured individual can borrow against or withdraw"
- Variable life insurance
Variable life insurance is considered more flexible than whole life insurance. It carries a cash value that is tied to investments. These investments include money market funds, bonds, stocks, and other accounts that may carry risk. Speak with your insurance company about where to invest, as your choices may either increase or decrease your policy value.
- Universal life insurance
Another flexible option, universal life insurance also accrues a tax-deferred value over time. What makes it unique is the ability to adjust your premium according to your needs over the term of the policy. A portion of that premium is placed in a savings-type account, whereas the other portion is allocated to investments. This gives you greater stability while also giving the opportunity to see quick growth through money markets, stocks, and bonds.
Term Life Insurance
Unlike permanent life insurance, term life insurance does not remain in effect for the policyholder's entire life. Generally, term life insurance policies remain in effect from five to 30 years. If the policyholder dies within the predetermined term, the policy beneficiary will receive a payout. If the policyholder outlives the term of the policy, however, the beneficiary will not receive a death benefit.
Types of term life insurance include:
- Level Term life insurance
Level term life insurance policies have premiums that are guaranteed to remain the same for a certain amount of years. The most common terms of level term policies are 10, 15, 20 and 30 years. After the term is over, the policy is renewable with a higher premium.
- Annual Renewable life insurance
Annual renewable term life insurance policies are less common than level term policies. With this type of policy, your premiums start low and increase over time. If you are young, healthy and purchase an annual renewable policy early, then your policy premiums will tend to stay low.
Term life insurance premiums are based on age and health, and may require a medical exam to qualify. Term life policies can sometimes be converted to a whole life policy after your term limit is expired.
Speak with a licensed agent at 1-800-966-7169 to learn more about your options.
*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.