Basic Types of Life Insurance Policies
When comparing life insurance plans, a clear understanding of the basic types of life insurance will help you choose your best coverage. Find out about the important differences between life insurance policies such as term life, universal life and whole life insurance.
Life Insurance Policy Options
With all the types of life insurance offered, how can anyone begin to understand the distinctions? The easiest way to start is with the knowledge that no matter what they are called, only two true categories of life insurance plans exist: permanent life insurance and term life insurance.
What is Permanent Life Insurance?
Permanent life insurance provides coverage for your entire lifetime. If you pay your premiums, have no loans or withdrawals on your policy and don't take any surrenders, your beneficiaries will receive the entire face amount of your permanent life insurance policy when you die.
Permanent life insurance combines an investment component with the death benefit and accumulates a cash value over time. Some common types of permanent life insurance plans offered include:
- Survivorship or second-to-die life insurance
- To age 100 level guaranteed life insurance
- Universal life insurance
- Variable life insurance
- Whole life insurance.
With permanent life insurance policies, you may be able to borrow against accumulated cash value, or even use this value to cover your premiums.
Understanding Term Life Insurance Policies
Unlike permanent life insurance, term insurance only provides death benefit coverage during a specified period of time such as 10, 20 or 30 years. If you pass away during the insurance term, your beneficiary will receive the full death benefit. However, when the term is over, the policy typically ends or becomes prohibitively expensive, leaving you no life insurance, unless you purchase another policy.
Term life insurance has no investment aspects and doesn't accumulate a cash value. Because of this, the premiums for term life are generally lower than those of permanent life insurance. Some basic types of term life insurance include:
- Convertible term insurance
- Group term insurance
- Increasing or decreasing term insurance
- Level term insurance
- Renewable term insurance.