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Life insurance policies have two main categories: term and permanent.
You can think of term life insurance as temporary life insurance. When you buy a term policy, you pay a fixed amount for coverage with a set expiration date. For example, a 20-year term policy would last for 20 years from the day the coverage started. If you die during this period, your designated beneficiaries receive the policy death benefit. If you live past your policy’s term period and you want to remain insured, you’d need to buy another insurance policy, or pay a new premium amount that may be significantly higher than your previous payments.
In contrast, permanent life insurance policies don’t have a set expiration date. These policies are designed to last your entire life, provided you keep making your premium payments. Some permanent life insurance policies offer an additional benefit known as “cash value.” This is money in your policy that you can take out or borrow against. It is important to note that loans against an insurance policy accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest. There are three common types of permanent insurance policies:
Whole life insurance policies have a fixed premium, meaning you need to pay the same amount each year. Whole life insurance also provides steady, fixed growth on your cash value.
Universal life insurance policies have more flexible premiums. You can change how much you pay each year; though you need to pay a minimum amount or the policy will lapse. Your earnings in a universal life policy can vary based on the specifics of your policy and the interest rates that are credited. Some years, universal policies may earn more than whole life and others they may earn less.
Variable life insurance policies allow you to invest a portion of your premium into the insurer’s separate account, similar to a mutual fund-style of investing. Your death benefit and cash value will fluctuate with the performance of your policy’s portfolio of investments. As a result, you can potentially earn a higher return on your death benefit and cash value life insurance. But if your investments don’t do well, your account balance won’t grow or could lose value.
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Variable Life products issued by Protective Life Insurance Company (PLICO) in all states except New York and in New York by Protective Life & Annuity Insurance Company (PLAICO). Securities offered by Investment Distributors, Inc. (IDI). All companies located in Birmingham, AL. IDI is the principal underwriter for registered insurance products issued by PLICO and PLAICO, its affiliates.