Two Basic Types
There are two basic types of life insurance: permanent insurance that
provides protection for life; and term insurance that provides insurance
coverage for a specific number of years. Both types pay a death benefit
if you should die with the policy still in force.
is a common permanent policy that provides a guaranteed death benefit,
expressed as the face amount, for premiums that are usually guaranteed
to remain level regardless of age or health changes throughout your
life. Whole life policies often pay dividends. These policies accumulate
a cash value that may be borrowed against, used to continue coverage if
premiums are missed, or withdrawn.
is a permanent interest-sensitive policy that is more flexible and is
divided into basic insurance and an investment account. You can decide
how much goes into each and increase or decrease your premiums and the
death benefits within some limitations. Premiums and benefits can be
readjusted at specified times, depending on your insurance needs and on
what choices you make in the investment side of the policy.
are often seen as permanent insurance but their main characteristics are
similar to other term insurance policies. Most term-to-100 plans don't
build cash values or pay dividends. They provide a death benefit to age
100, if the policy is kept in force, and have level premiums, regardless
of changes in age or health. Basic term insurance policies are generally
for a specified period, such as one, five, 10 or more years, or to a
specified age. These contracts tend to have lower premiums while the
life insured is young, but when renewed for an additional term period,
the premiums can rise significantly. Term policies are ideal to cover
large obligations over a short period when funds available for insurance
are small. Most term policies can be converted to a permanent policy
under certain conditions.