Your Guide to Life Insurance

Common Types of Life Insurance

Term Life Insurance

This type of insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.

Whole Life Insurance

Whole life insurance, also known as whole of life assurance, is a type of life insurance policy designed to provide coverage for the insured’s entire lifetime. Unlike term insurance, which only offers protection for a specific period, whole life insurance remains in force as long as the premiums are paid.

Typically, policyholders are required to make annual premium payments, which contribute to both the death benefit and the cash value of the policy. Over time, this cash value accumulates, allowing policyholders to borrow against it or withdraw funds if necessary.

This form of insurance not only offers financial protection for loved ones in the event of the policyholder’s death but also serves as a valuable financial asset that can be utilized throughout the insured’s lifetime. Whole life insurance can be an effective component of a long-term financial strategy, providing peace of mind and security for individuals and their families.

Universal Life Insurance

A type of permanent life insurance. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, as well as any other policy charges and fees which are drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer, but has a contractual minimum rate of 2%. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is a “Equity Indexed Universal Life” contract.

Variable Universal Life Insurance

This coverage is a type of life insurance that builds a cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. The ‘variable’ component in the name refers to this ability to invest in separate accounts whose values vary—they vary because they are invested in stock and/or bond markets. The ‘universal’ component in the name refers to the flexibility the owner has in making premium payments. The premiums can vary from nothing in a given month up to maximums defined by the Internal Revenue Code for life insurance.