Types of Life Insurance Policies

Individuals purchase life insurance to protect their family or their business. There are three basic types of life insurance policies.

Whole Life Insurance

This type of insurance is permanent. The policy is in effect for your "whole life" as long as your premiums are up-to-date.

The premiums for whole life insurance are more expensive than those for an equal amount of term life insurance because the premiums are averaged. Whole life insurance does not need to be renewed and your premiums remain the same.

With some whole life insurance policies you can add a savings option which will allow you to borrow against your insurance.

Universal Life Insurance

A universal life insurance policy is similar to whole life insurance in that the policy is in effect until you die. The policy does not have to be renewed and the premiums remain the same.

With a universal life insurance policy, you can incorporate other financial services including a savings plan in addition to the policy. The policy can be surrendered in exchange for the savings that have accumulated. There are other options you can add to the policy such as adding another person, managing investments, or using the savings to cover the costs of premiums.

This is the most expensive of the life insurance policies because of the man options and flexibility of the policy.

Term Life Insurance

The least expensive life insurance policy is term life insurance. You select the coverage period or term of the insurance such as 5 years, 10 years, or 20 years. This type of insurance is good for young families with young children and if you are currently paying a mortgage on your home. This type of insurance policy has no cash value. You can not borrow against it or cash it in. When the term ends, the policy has to be renewed and the premiums will be higher.

Term life insurance will protect your family in the short term, but you will also need to have a separate savings plan for long-term financial planning.

Policy Additions

An addition to a life insurance policy is called a "rider." Depending on your needs, there are options that can be purchased with certain types of insurance policies. This includes adding a spouse, disability income insurance, Accident and Sickness (A&S), Accidental Death and Dismemberment (AD&D) as well as choices for making loans or cash pay outs on certain policies.

You should determine the needs you have for yourself and for your family. Discuss these needs with your financial advisor or with an insurance agent or broker. They will explain the various features and benefits of the different types of life insurance policies.