Life Insurance Types
Term Life Insurance - A temporary life insurance
policy that typically is guaranteed for a certain number of years (10, 15, 20, 30) with level premiums.
Usually, because of the finite nature of this type of life insurance, premiums are considerably less expensive than
a permanent life insurance policy (especially for people in their early adult years). Many Term insurance
policies are "convertible" to a permanent policy without proving insurability. However, the conversion
feature only purchases enough permanent life insurance coverage that the premiums would buy at the age of
conversion. Typically, it's considerably less than the original policy. As a rule of thumb, for many
younger people, the expression "buy term and invest the difference" is applicable. Group Term Insurance is a
common employee benefit as well.
Whole Life Insurance - A permanent type of life
insurance. Whole life insurance policies are guaranteed renewable as long as you pay the premium. In
addition, whole life policies build cash value (above and beyond the death benefit) that have some great uses
including: taken as a loan, used for long-term care expenses, pay premiums (sometimes leading to a
"paid-up" policy) and/or retirement cash payments. Typically, whole life insurance policies have level
premiums so younger policy holders will pay more than they would with a Term policy (but will build cash value) but
considerably less as they get older if they tried to get the same coverage amount with a Term
policy.
Universal Life Insurance
- Like Whole Life Insurance except the extra cash value build up is tied to an index or
set at a fixed rate. These policies are usually less expensive (per monthly premium) than whole life because
of the "investment" feature and set index rate. These policies typically have level premiums as
well.
Variable Life Insurance - Like Whole Life Insurance
except extra cash values are invested into "sub-accounts" (the insurance company version of mutual funds).
Depending upon the cash-value growth of the sub-accounts you may need to contribute more funds in the future.
Conversely, over the long-term the underlying cash value might grow and you could use the cash value build-up to
pay premiums.
Mortgage Life Insurance - Essentially, this is a term
life insurance policy. Many times mortgage companies offer mortgage
life insurance to new mortgage applicants to pay off the mortgage in the event of a death. You pay
the same insurance premium amount until the mortgage is paid off. However, it must be noted that getting
mortgage life insurance via your mortgage company is usually much more expensive than getting yourself AND the
lender is the beneficiary, not you.
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appointment.
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