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Life Insurance

Life Insurance Policies

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Life insurance is a contractual agreement between an insurance company and an insured person who is known as the policyholder. Upon the death of that policyholder, the contract of insurance pays out a sum of money to a third person. That third person is known as the beneficiary. There are several different types of life insurance. These are only a few.

Term life

This is the most common and least expensive form of coverage. It lasts for a certain term of years, and the premium amount never changes. When the term expires, the insured person can enter into a new term policy, but the premium rate will increase. The most common terms are for five or 10 years.

Whole life

These carry continued coverage for the policyholder for life so long as the premiums are paid. Premiums don't increase. Interest accrues on the premiums paid and the policy grows a tax deferred cash value. That cash value can be either borrowed against or cashed out. With some whole life policies, cash value can be converted to be used for payment of premiums.

Universal life

This also provides permanent coverage along with a cash value. Depending on how an insured person's circumstances change, premiums, cash value and benefit amount can be adjusted during their lifetime.

Variable Universal

This also permits flexibility of premiums, cash value and benefit amount, but the insured person chooses the investments. Any potential risk exposure is on the shoulders of the insured person. This is more in the nature of a security as opposed to an insurance product, and it's regulated accordingly.

There are many ways to structure policies with a wide range of premiums and coverage duration. Some people opt for the less expensive term policy and invest the extra money. Others elect to be covered by whole life with the cash value option. Universal provides a compromise with plenty of wiggle room. Whatever an insurance shopper's circumstances, there's a policy that fits.

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