1. Term Life
2. Whole Life
Term Life insurance is essentially pure life insurance with no accumulating cash value. It is sold in a variety of forms and for a variety of purposes. The most common type today is level term, which has a level death benefit and a level premium for a specified number of years ( I.E. 1,5,10,20,30 year level term). Decreasing Term is generally sold with a level premium and a decreasing death benefit. A variation of decreasing term is mortgage life insurance, which is designed to decrease at the rate in which a mortgage balance decreases. These types of policies are often offered as riders in connection with whole and universal life policies. Always read your policy carefully.
Whole life by definition has a level premium and level death benefit to age 100 with a cash value that increases with time until it equals the death benefit at age 100. There are several variations of this in which the premiums may be lower in initial years as in modified premium whole life and graded premium whole life in which the premiums increase yearly for several years.
Waiver of premium is a common rider, which ordinarily pays the premiums for you in the event of total disability that lasts for a period of at least six months.
Cash value is an amount of money that you are guaranteed to receive in the event of policy cancellation. You also have the right to borrow against the cash value on a loan basis. Please review policy nonforfeiture provisions for complete details. Always read your policy carefully.
Universal Life is term insurance with an investment attached. The investment consists of a short-term money instrument yielding a modest return. In the case of Variable Universal Life a variation, the underlying investment involves some type of equity product (I.E. stock fund, bond fund, real estate fund or a combination by choice). Typically the death benefit reduces in proportion to the increase in cash value causing a level death benefit, although variations and riders can cause the death benefit to increase in proportion.
Riders and nonforfeiture provisions are similar to those for whole life policies. Always read your policy carefully.
Variable life is essentially like whole life except that the underlying cash value is determined by the value of investment units in specific investments usually chosen by the policy owner. Investments can include stock funds, bond funds, real estate funds or a combination. In other words death benefits & cash values are variable.
Burial, or Final Expense Life Insurance is essentially a whole life product with small face values and ($5,000 to $25,000) and hassle free underwriting. The application process is simple and does not have the associated medical requirements of other policy types.
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Always consult your tax advisor and attorney when considering the purchase of any insurance policy.