Term Life Insurance
Whole Life Insurance
Universal Life Insurance

Life Insurance Type

insurancebrochure Life Insurance Type

Life insurance types are in two basic divisions. The temporary or term life insurance type is for a specified number of years. If no claim is made during the term, then after the life insurance term expires, there is no refund and no benefit, the same as expected for any other insurance like homeowners or automobile insurance. The permanent life insurance type does not expire and provided premium payments are made, the death benefit will be paid as the policy contract specifies.

Cash Value Life Insurance

The permanent life insurance type has various forms, e.g., whole life, universal, or variable, and has no expiration date. Part of the premium pays for life insurance and the rest contributes to a savings or investment account. The account may be either variable (invested in mutual funds, stocks, bonds) or paid interest by the life insurance company.

So unlike term, permanent coverage generates some life insurance cash value. Usually it is possible to borrow against the cash value of this life insurance and take out a policy loan.

Universal Life

Universal life insurance policies that are designed to have a level premium to age 100 with no further premium payable after that, have a much lower premium than whole life insurance. There is talk that regulators may require more in reserves for this coverage which is useful as estate life insurance. If reserve requirements for these policies are substantially increased, premiums will likely increase significantly and the opportunity to get such low cost permanent life insurance may be lost.

However, if you become a life insurance policyholder before this happens, by being a current policyowner at that time, your life insurance policy will not be affected.

What is the Best Type?

Which is the best life insurance type for you? That depends on why you need life insurance, if at all. For example, for the lowest cost life insurance type until children are grown, term for the necessary period would be best. For estate tax planning or having a certain life insurance estate, the permanent life insurance type would be needed. For certain business situations, key employee (key man) life insurance or life insurance for a buy-sell agreement for the appropriate period would be best.

Rating Life Insurance Companies

Life insurance companies may be rated by one or more of the following rating agencies: A. M. Best, Standard and Poors, Fitch, Moody's, Weiss, and Comdex.

¶ Nothing in this page constitutes advice or recommendation of any nature, whether legal, tax, financial planning or otherwise. The above comments represent only the author's understanding of the subject and may be incorrect or out of date.

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