Life insurance comes in two main types: term life insurance and whole life insurance. Whole life insurance is also called permanent life insurance. Whole life insurance has several sub-types, which include: traditional whole life, universal life, variable life, and variable universal life. The majority of policies that people purchase are term life insurance. Whole life insurance is less popular.
Life insurance that is provided to people by their employer benefits is different that life insurance that is sold to individuals. In this article we will look at life insurance that is sold to individuals.
Term Life Insurance
Term Life Insurance is the most basic form of life insurance. It only covers if someone dies during the specified term of the policy, which is usually from 1-30 years. Most “term” policies have no other benefits.
Two types of term life insurance policies are “level” term and “decreasing” term. The majority of term life insurance policies sold are level term policies.
Level term: the death benefit stays the same throughout the duration of the policy.
Decreasing term: the death benefit drops in 1-year periods, over the course of the term.
Whole Life Insurance (Permanent Life Insurance)
Whole life, or permanent life insurance, pays a death benefit whenever you die. There is no specified term like in term life insurance. Three main types of whole life insurance are traditional whole life, universal life, and variable universal life. Each type also has different variables, but we will focus on the main types here.
1. Traditional whole life. The premium and the death benefit will stay at the same level while the policy is active. As a you get older, the cost per $1,000 of benefit increases. Insurance companies sometimes charge a premium that increases each year. However, it could become very expensive as you age, so the insurance company usually starts with a higher premium while you are young to supplement the premium when you get older.
One of the “benefits” of having this type of insurance is that you “overpay” while you are young. When these “overpayments” reach a certain amount, by law they must be available to you as a cash value if you decide to cancel your policy. A sash value is an alternative benefit under most traditional life policies.
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