Life insurance policies have two main categories: term and permanent.
Term life insurance
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 remain in force for 20 years from the day the coverage started as long as premiums were maintained. If you died during this period, your designated beneficiaries would 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 life insurance policy, or pay a new premium amount that may be significantly higher than your previous payments.
Permanent life insurance
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 required premium payments on time. Permanent life insurance policies offer an additional feature known as “cash value.” This is money in your policy that you can withdraw 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
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
Universal life insurance policies have 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
Variable life insurance policies allow you to invest a portion of your premium into the insurer's separate account, providing access to professionally managed investment options. You can potentially earn higher cash value with these policies. However, if your chosen investment options under-perform (or if sufficient premiums are not paid), the policy may lapse or not accumulate sufficient value to maintain the policy.
WEB.1109.11.13
