Types of Life Insurance

There are two major categories of life insurance: term life insurance and permanent life insurance. Term insurance, as it's name suggests, is designed to provide coverage for a specific duration, or term, while permanent insurance is designed to provide coverage for the entire life of the insured.

Term Insurance

The most popular type of term insurance sold today is level premium term insurance. With this type of policy, the premiums are fixed for a specific duration, typically 10, 20 or 30 years. After the level term period is up, the premiums increase dramatically and continue to rise each subsequent year. Because a large amount of coverage can be purchased inexpensively using level term, it is typically used to protect a family during the years when family obligations are the highest, i.e. mortgage, child rearing, college expenses, etc.
Less popular in today's market is a product known as annual renewable term insurance. With this type of policy, the premiums increase each year that the policy is in force, making it suitable for only the shortest durations (typically less than 3-4 years).
Also available is decreasing term insurance. This type of policy is typically used to cover financial obligations that reduce over time, such as with a mortgage or other loan. Because of it's limited usefulness, decreasing term does not typically offer the same value as other types of term insurance and you will often find premiums that are as high (or higher) than level premium term.
It is also important to consider the wide variety of riders (options) that are available for many term insurance policies. Some of these riders include: return of premium, accidental death benefit, terminal illness and waiver of premium for disability. These options can enhance the value of a life insurance policy and should be considered.

Permanent Insurance

Permanent life insurance policies can be roughly classified into two main types: whole life and universal life. While these two types often get confused in the media, there are significant differences between them.
Whole life insurance is a level premium, level death benefit policy with guaranteed cash value accumulation. Universal life insurance is a flexible premium, adjustable death benefit policy with non-guaranteed cash value accumulation. These differences should be considered carefully buy a consumer before making a decision about which type is more appropriate for their needs.
Like with term insurance, permanent life insurance policies offer a variety of riders to enhance the value of the policy. Some of the riders available for permanent insurance include: waiver of premium or waiver of monthly deduction, additional insured, additional paid up insurance, accidental death benefit and future purchase options. Again, these optional features should be considered carefully when deciding on an insurance policy.

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