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Life Insurance Policies Explained

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Six Basic Kinds of Life insurance

Regardless of how fancy the policy title or sales presentation may appear, all policies contain benefits derived from one or more of the three basic types shown below. Some policies due combine more than one kind of and can be confusing.

Term Life Insurance

Endowment Life Insurance

Whole Life Insurance

Variable Life Insurance

Universal Life Insurance

Variable Universal Life Insurance

Term Life Insurance

Term is death protection for a term of one or more years. Some companies are offering policies with terms up to thirty years. Premiums on term insurance remain level during the life of the policy. Term Life Insurance has no cash value account. Death benefits will be paid only if you die within that term of years. Term insurance generally provides the largest immediate death protection for your premium dollar.

Some term policies are renewable for one or more additional terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. You should check the premiums at older ages and the length of time the policy can be continued.

Some term insurance policies are also convertible. This means that before the end of the conversion period, you may trade the term policy for a whole life or endowment insurance policy even if you're not in good health. Premiums for the new policy will be higher than you've been paying for the term insurance.

Life Insurance "Endowment".

An endowment insurance policy pays a sum or income to you, the policyholder, if you live to a certain age. If you were to die before then, the death benefit would've paid to your benefiary. Premiums and cash values ​​for endowment insurance are higher than for the same amount of whole . That endowment insurance gives you the least amount of death protection for your premium dollar.

Whole Life Insurance

Whole gives death protection for as long as you live. The most common type is called straight life or ordinary . Which you pay the same premiums for as long as you live. These premiums can be several times higher than you'd pay initially for the same amount of term insurance. But they're smaller than the premiums you'd ever pay if you were to keep renewing a term insurance policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years. Until age 65. Premiums for these policies are higher than for ordinary since the premium payments are squeezed into a shorter period.

Although you pay higher premiums, to begin with. Whole than for term insurance, whole policies develop cash values ​​which you may have if you stop paying premiums. You can generally either take the cash. Use it to buy some continuing insurance protection. Technically speaking, these values ​​are called nonforfeiture benefits. This reflects to benefits you don't lose or forfeit when you stop paying premiums. The amount of these benefits depends on the kind of policy you've, its size. How long you've owned it.

A policy with cash values ​​may also be used as collateral for a loan. If you borrow from the company, the rate of interest is shown in your policy. Any money which you owe on a policy loan would be deducted from the benefits if you were to die. From the cash value if you were to stop paying premiums.

Variable Life Insurance

Variable , provides permanent protection for you and death benefits to your beneficary upon your death. The value of the death benefits may fluctuate up or down depending on the performance of the investment portion of the policy. Most variable policies guarantee that the death benefit won't fall below a specified minimum, however, a minimum cash value is required guarantee. Variable is a form of whole and because of investment risks it's also considered a securities contract and is regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Universal Life Insurance

Universal is a variation of Whole Life. The insurance part of the policy is separated from the investment portion of the policy. The investment portion is invested in bonds and mortgages, the investment portion of Universal Life is invested in money market funds. The cash value portion of the policy is set up as an accumulation fund. Investment income is credited to the accumulation fund. The death benefit portion is paid for out of the accumulation fund. Unlike Whole Life Insurance, the cash value of Universal Life Insurance grows at a variable rate. Normally, there is a guaranteed minimum interest rate applied to the policy. No matter how badly the investments go by the insurance company, you're guaranteed a certain minimal return on the cash portion. If the insurance company does well with its investments, the interest return on the cash portion will increase.

Variable-Universal Life

Variable universal pays your beneficiary a death benefit. The amount of the benefit is dependent on the success of your investments. If the investments fail, there is a guaranteed minimum death benefit paid to your beneficary upon your death. Variable universal gives you more control of the cash value account portion of your policy than any other insurance type. A form of whole , it's elements of both and a securities contract. Because the policy owner collects investment risks, variable universal products are regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that's right for you. It's amazing how much rates may vary from company to company for the same coverage.



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