If you are looking for life insurance, but are a little confused by all the different options and terminology, then you have come to the right place. Here you will find a straightforward, commonsense explanation of all the different types of life insurance that are commonly available to purchase.
Whole Life Insurance – This type of insurance will last your whole life (hence the name). It can also increase in value at a certain rate of interest. The premiums (the amount you pay, usually per month) stay the same. The money from the premium usually goes toward three things: the actual insurance, administrative expenses, and the investment. The investment portion earns interest tax free, unless you withdraw an amount greater than the basis (amount of premiums paid minus past dividends and withdraws). Whole life insurance policies are usually more expensive than other types of life insurance.
Universal Life Insurance – Universal life is just like whole life except that the premiums, cash values (amount of money that you get if you cancel the policy), and level amount of protection can vary throughout the life of the policy.
Variable Life Insurance – As the name suggests the cash value and death benefit can change over the life of the policy. Variable life insurance includes two separate accounts: general (for liability) and investment (could include equities, bonds, or money market funds). This type of policy provides more potential for growth in the investment account.
Variable Universal Life Insurance – This type of insurance policy is a cross between universal and variable life insurance. It offers you the ability to change the premiums, death benefits, and investments. One risk of this type of policy is that the death benefit may decrease if the underlying securities lose value.
Term Life Insurance – These policies only provide a death benefit for a specific period of time. If you outlive that time period, then the policy expires. Unlike other policies, term life insurance does not build cash value. Because of this, the premiums are lower than those of other types of life insurance.