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long term life insurance

Life Insurance Categories

Life Insurance Categories

Fixed Period or Permanent

The most commonly purchased life insurance category is still term.

However, unlike the first type of life insurance invented, which was limited to annual renewable term, it is now available for a guaranteed level premium for a specified number of years in five year increments up to thirty years.

Since there is a need in some cases for a life insurance category that does not expire at the end of a term, various ways have been devised to fund permanent insurance that will pay a death benefit no matter when the insured dies.

Whole Life

The first permanent life insurance category was called "whole life" because premiums were payable for the insured's whole life. A higher premium than term was necessary so that an internal accounting mechanism would build up a cash value at compound interest tax free. This was not done to provide the policyholder a savings account to borrow against, or to have extra money in retirement, but to reduce the net amount at risk for the insurance company.

As the account value increases, the difference between the account value and the death benefit would decrease until it became zero at a certain age, typically age 95 or 100. By reducing the amount at risk, the insurance company could issue this insurance category where the death benefit is a guaranteed "when", instead of "if", while maintaining the financial integrity of the life insurance operation. The individual life insurance policy itself grows to be increasingly self-supporting, giving more financial security to the insurance company compared to just paying claims out of a general pool of premiums collected.

whole term

Universal Life

When interest rates were high in the 1970's, whole life policies seemed to be poor performers, and a new permanent policy design evolved, universal life. Since the cash value is usually invested in short and intermediate fixed-income instruments, its returns fluctuate more than a whole life policy whose account is invested in long term bonds and mortgages. Because of the short term nature of its investments, overly optimistic illustrations of universal life policy performance have disappointed many buyers.

Variable Life

In order to provide the opportunity to boost the value of the account in a permanent insurance policy even more, variable life was introduced. A variety of investment options is available, some managed by the insurance company, some using outside managers. Either way, there are management fees that reduce returns to some degree. Various mixes of mutual funds are offered such as small cap, index, precious metal, global, and bonds.

Gains made within the annuity compound tax-deferred. When withdrawn they are taxed as ordinary income, not at the lower capital gains rate.

Permanent Life with minimum premium

However, especially since the introduction of universal guaranteed level premium to age 100, it has been said that it is better to keep insurance separate from investing. The premium for guaranteed level premium Universal Life is significantly less than whole life. So it is possible to have a lower cost permanent life insurance policy and focus investing elsewhere.

Quotes for Universal guaranteed level premium to age 100 life insurance policy is included in our online quoting system of over 120 top life insurance companies.

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