Life Insurance

Types of Life Insurance Policies

Updated on February 12, 2020

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family and life insurance
There are a variety of options for people who want to purchase a life insurance policy. With a little research, you can find a policy that works for you and your family. Learning which policy fits in with your financial goals and will support your family long after you’re gone is definitely time well spent.
The two main types are term life insurance and permanent life insurance. Each type has different policies, with unique features that will appeal to different people.

Term life insurance

Term life insurance is a standard insurance policy that provides coverage for a specific period of time. This means if you don’t die within the term, your beneficiary doesn’t get the death benefit and the policy expires. You select the term that works best for you. Common lengths for term life insurance are 10, 20, or 30 years. One of the challenges for people who purchase term life insurance is deciding how long the policy should last. You may want to have the policy last until you retire or as long as your youngest dependent will need financial support.
Types of term life insurance policies include:

  • Annual renewable term: This is a good option for a younger person because it starts with a low annual premium. However, the premium does increase as you age.
  • Level premium term: The premium is generally more expensive, but it’s guaranteed to stay the same for the entire length of your coverage

Permanent life insurance

Permanent life insurance, as the name implies, provides coverage for your entire life, as long as you continue to pay your premiums. The premium for permanent life insurance is generally more expensive than for term life, but it usually doesn’t increase as you age. Permanent life insurance is also called cash-value insurance. It’s often considered a financial investment, because part of the premiums you pay are invested by the company that sold you the policy. These investments give you a tax-sheltered way to earn money.
Permanent life insurance policies have a face value and a cash value. The face value is the amount your beneficiaries receive when you die; in other words, the death benefit. The cash value is equal to the amount of premiums you have paid, plus any investment earnings. Some permanent life insurance policies guarantee growth for the cash value. Others involve more risk, which means the cash value of your policy could potentially decrease over time.
One advantage of permanent life insurance is that you don’t pay any interest on your investment earnings, and your beneficiaries don’t pay any tax on the death benefit when it is eventually paid out. In some circumstances, you can even borrow money tax free from your permanent life policy.
There are four types of permanent life insurance.
Whole life:

  • Appealing to people who prefer a more stable policy.
  • Premium is fixed.
  • Guaranteed growth of cash value through investment.
  • Insurance company controls investment.

Universal life:

  • Policy offers more flexibility.
  • You can adjust how much or when you pay for your premium (as long you meet predetermined minimum and maximum amounts).
  • Easier to adjust the amount of the death benefit (if you want more or less coverage).
  • Insurance company controls investment.

Variable life:

  • More options for how your money gets invested (including stocks, bonds, and mutual funds).
  • More control over how your money gets invested.
  • Good choice for someone who wants to manage their investments.

Variable universal:

  • Combines the enhanced investment features of variable life with the flexibility offered with universal life.

Talk to one of our friendly health insurance agents to help you make the right choice for you and your family.

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