The Four Chief Types of Life Insurance
Life insurance, at its core, is a means to protect the financial
security of one's survivors. It is generally thought of as a way
to provide income replacement for a wage earner's survivors in
the event of death. Life insurance is purchased from an insurer
by making regular payments of premiums during the life of the
insured. Upon the death of the insured, designated beneficiaries
receive a financial benefit.
Although all life insurance policies maintain those consistent
characteristics, there are different means to achieving the same
end. Four distinct types of life insurance have been developed
and are in common usage.
Term Life Insurance
Term life insurance is probably the most basic form of life
insurance. Term insurance is purchased for a specific period of
time (the term). The length of the term can vary considerably.
There are term policies that are effective for well over twenty
years, whereas some only involve a one-year term. A regular
premium is paid throughout the term. If the insured dies at any
point during the term, the designated beneficiary receives the
death benefit. If one survives the term, however, there is no
payout and the policy simply ends.
Whole Life Insurance
Whole life insurance has a long history and maintains great
popularity. The cost of premiums is guaranteed for the entire
time the policy in place. As premiums are paid, the insured
accumulates a cash value for the policy, with the insurer
determining the interest rate applied to that cash value. One
may either "cash out" their whole life policy, or maintain it so
that benefits are paid to survivors upon the policyholder's
death. Whole life insurance policies were long "the norm" in the
insurance industry.
Universal Life Insurance
Universal Life Insurance is considered a more flexible approach
to life insurance. The required regular premium amount can vary
as long as the policy has a cash value in excess of the policy's
costs. The insured can alter the policy's future payout while
the policy remains in force, making it a flexible insurance
solution for those who may have more complicated or
rapidly-changing needs than can be addressed with term or whole
life solutions.
Variable Universal Life Insurance
Variable Universal Life Insurance takes the flexibility of
universal life coverage and adds to it by providing investment
choices. The policy's cash value is not based simply on an
interest rate determined by the insurer. Instead, the policy's
value is based upon the performance of various investments. The
insured allocates his premiums among a series of investment
options with a variable universal life insurance policy.
Although all insurance policies do share common characteristics,
the four different types of insurance policies have some marked
differences. Each type of insurance policy has advantages and
limitations. For some, a simple term policy will more than
suffice to meet their life insurance needs. Others may benefit
considerably from a more full-featured insurance policy that
includes an investment component and the ability to alter the
nature of benefits and the premium.
About the author:
Evan C Davis works in Medicare customer service, and is the
webmaster and owner of Instant Health
Insurance. Find health
insurance quotes online at
http://www.find-health-insurance-online.com
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