Life Insurance
There are two major types of life insurance—term and whole life. Whole life is often referred toas permanent life insurance, and has several subcategories, including traditional whole life,universal life, variable life and variable universal life.Term Insurance
Term Insurance is the simplest form of life insurance. It pays only if death occurs duringthe term of the policy, which could be 10,20, 30 years depending on what plan andcompany you elect for coverage. Most term policies have no other benefit provisions,while others do; currently some carriers offer the option for return of premium at the endof the term, which is a fairly inexpensive add on to your policy . It’s almost like leasingan apartment and at the end of the lease you move out and receive all premiumpayment back.There are two basic types of term life insurance policies: level term and decreasingterm.
● Level term means that the death benefit stays the same throughout the durationof the policy.
● Decreasing term means that the death benefit drops, usually in one-yearincrements, over the course of the policy’s term.
Whole life/permanentWhole life or permanent insurance pays a death benefit whenever you die—even if youlive to 100! There are three major types of whole life or permanent lifeinsurance—traditional whole life, universal life, and variable universal life. In the case oftraditional whole life, both the death benefit and the premium are designed to stay thesame (level) throughout the life of the policy. The cost per $1,000 of benefit increasesas the insured person ages, and it obviously gets very high when the insured lives to 80and beyond. The insurance company could charge a premium that increases each year,but that would make it very hard for most people to afford life insurance at advancedages. So the company keeps the premium level by charging a premium that, in the earlyyears, is higher than what’s needed to pay claims, investing that money, and then usingit to supplement the level premium to help pay the cost of life insurance for older people.By law, when these “overpayments” reach a certain amount, they must be available tothe policyholder as a cash value if he or she decides not to continue with the originalplan. The cash value is an alternative, not an additional, benefit under the policy.