Types Of Life Insurance Policies

Term Life, by definition, is a life insurance policy that provides a stated benefit upon the holder’s death, provided that the death occurs within a certain specified period. However, unlike an insurance policy, which allows investors to share in returns from the insurance company’s investment portfolio, the policy does not offer any returns beyond the stated benefit. Annually renewable term life. Historically, a term life rate increased yearly as the risk of death increased. While unpopular, this type of life policy is still available and is commonly referred to as annually renewable term life (ART).

Guaranteed level term life.

Many companies now also offer level-term life. This type of insurance policy has premiums designed to remain level for 5, 10, 15, 20, 25, or even 30 years. Level-term life policies have become extremely popular because they are very inexpensive and can provide relatively long-term coverage. But be careful! Most level-term life insurance policies contain a guarantee of level premiums. However, some policies don’t provide such assurances. Without a contract, the insurance company can surprise you by raising your life insurance rate, even when you expect your premiums to remain level. It is important to understand the terms of any life insurance policy you are considering.


Return of premium term life insurance

Return of premium term insurance (ROP) is a relatively new insurance policy that offers a guaranteed refund of the life insurance premiums at the end of the term period, assuming the insured is still living. This term life insurance policy is more expensive than regular life insurance, but the premiums are designed to remain level. These premium term life insurance policy returns are available in 15, 20, or 30-year versions. They are often significantly less expensive than permanent types of life insurance, yet, like many permanent plans, they still may offer cash surrender values if the insured doesn’t die. Consumer interest in these plans has continued to grow each year.

Types of Permanent Life Insurance Policies

A permanent life insurance policy, by definition, is a policy that provides life insurance coverage throughout the insured’s lifetime ñ the policy never ends as long as the premiums are paid. In addition, a permanent life insurance policy provides a savings element that builds cash value.
Universal Life

Life insurance combines the low-cost protection of term life with a savings component invested in a tax-deferred account, the cash value of which may be available for a loan to the policyholder. Universal life was created to provide more flexibility than whole life by allowing the holder to shift money between the insurance and savings components of the policy. Additionally, the inner workings of the investment process are openly displayed to the holder, whereas details of whole-life investments tend to be quite scarce. The insurance company breaks down variable premiums into insurance and savings.

Therefore, the holder can adjust the proportions of the policy based on external conditions. If the savings earn a poor return, they can pay the premiums instead of injecting more money. If the holder remains insurable, more of the tip can be applied to insurance, increasing the death benefit. Unlike with whole life, the cash value investments grow at a variable rate that is adjusted monthly. There is usually a minimum rate of return. These changes to the interest scheme allow the holder to take advantage of rising interest rates. The danger is that falling interest rates may cause premiums to increase and even cause the policy to lapse if interest can no longer pay a portion of the insurance costs.

To age 100 level guaranteed life insurance

This is often accomplished within a Universal Life policy, with the addition of a feature commonly known as a “no-lapse rider.” This type of life policy offers a guaranteed premium to age 100 and a guaranteed death benefit to age 100. Some, but not all, of these plans also include an “extension of maturity” feature, which provides that if the insured lives to age 100, having paid the “no-lapse” premiums each year, the full face amount of coverage will continue on a guaranteed basis at no charge after that.

Survivorship or 2nd-to-die life insurance

A survivorship life policy, also called 2nd-to-die life, is a type of coverage generally offered as universal or whole life and pays a death benefit at the later death of two insured individuals, usually a husband and wife. It has become extremely popular with wealthy individuals since the mid-1980s as a method of discounting their inevitable future estate tax liabilities, which can, in effect, confiscate an amount to over half of a family’s entire net worth!

Congress instituted an unlimited marital deduction in 1981. As a result, most individuals arrange their affairs to delay the payment of any estate taxes until the second insured’s death. A “2nd-to-die” life policy allows the insurance company to wait the amount of the death benefit until the second insured’s death, thereby creating the necessary dollars to pay the taxes exactly when needed! This coverage is widely used because it is generally much less expensive than individual permanent life coverage on either spouse.

Variable Universal Life

A form of a whole life that combines some features of universal life, such as premium and death benefit flexibility, with some parts of variable life, such as more investment choices. Variable universal life adds to the flexibility of universal life by allowing the holder to choose among investment vehicles for the savings portion of the account. The differences between this arrangement and investing individually are the tax advantages and fees accompanying the insurance policy.

Whole Life

Insurance covers an individual’s whole life rather than a specified term. A savings component, called cash or loan value, builds over time and can be used for wealth accumulation. Real life is the most basic form of cash value insurance. The insurance company essentially makes all of the decisions regarding the policy. Regular premiums pay insurance costs and cause equity to accrue in a savings account. A fixed death benefit is paid to the beneficiary along with the savings account balance. Premiums are fixed throughout the policy’s life, even though the breakdown between insurance and savings increases the insurance over time. Management fees also eat up a portion of the premiums. The insurance company will invest money primarily in fixed-income securities, meaning the savings investment will be subject to interest rate and inflation risk.


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