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Life Insurance Policy Types

Life insurance is a contract purchased by the insurer to provide a cash payment to a beneficiary or beneficiaries upon death of the insurer. The purchaser of the insurance is not necessarily the individual whose life is insured, but is usually an individual with obvious dependence on the insured. There are a variety of types of life insurance based on the needs and desires of the individual.

The major types of life insurance are listed below, along with the supplemental articles providing detail on each type.

Term Life Insurance or Temporary Life Insurance

Term life insurance, also known as temporary life insurance, is a life insurance contract is purchased for a specific price to cover a specific time. If the insured individual dies during that specified period or term, the beneficiary receives the value of the policy.

Since term life insurance can be very confusing and because there are so many variations of it, we have provided some supplemental articles to give specific examples and to detail different types of term policies. To see specific examples of types of term life insurance policies, check out the articles and resources listed below.

  • 10 Year Term Life
  • 20 Year Term Life
  • 30 Year Term Life
  • Annually Renewable Life
  • Decreasing Term Life
  • Level Term Life Insurance
  • Mortgage Life Insurance
  • Renewable Term Life Insurance
  • Short Term Life Insurance
  • Long Term Life Insurance

Permanent Life Insurance

Permanent life insurance is a type of life insurance that remains in force until it matures and the premium paid equals the amount that the insurance company would pay if the individual should die. This means that premiums may decrease over time since the premiums paid go into investments and hold cash value. Whole life, Universal, and Endowments are types of Permanent life insurance.

Whole Life Insurance

Whole life insurance is alife insurance policy that covers the entire lifetime of the individual during which the individual or insurer pays an annual premium. Part of this premium is invested and counts as a cash-value to the account. There is no flexibility in premiums.

Universal Life

This is sometimes used as a subcategory for whole life. Universal life insurance is a life insurance policy in which much of the premium goes into a cash-value system and is generally invested. There are variations on universal life insurance policies in which the investments become part of the insurance policy or are used to purchase a policy so that the actual cash value is decreased. Premiums are generally flexible and the payout of the policy can be raised based on premium payments.

Variable Life Insurance

This type of policy is sometimes used as a subcategory for whole life and/or universal life. Variable life insurance makes available a wider selection of investment options. The investments can be allowed to build and returns on these investments can be used towards the premiums of the insurance policy.

Limited Pay

Limited pay life insurance is simply a type of policy that requires the individual to pay premiums over a specified period of time or up to a certain age.

Endowment Life Insurance

With endowment life insurance, the cash value of the policy equals the death benefit at a certain age known as the endowment age. Premium payment period is typically shorter than that of regular life insurance and therefore payments are usually higher. Endowment dates can be earlier and pay out whether the insured individual lives or dies. Payment of an endowment is determined by the period of time after endowment age or at a specific age of the individual.

Accidental Death Insurance

This is a life insurance policy that is available to cover accidental deaths, or deaths from accidents. Although this type of life insurance is generally less expensive than most, it is typically not available to individuals involved in risky hobbies or careers.

Combining Types of Life Insurance

Combinations of the above are available based on purchasing options and premium options. Depending on combinations of options there are sometimes flexibilities in premiums or options to withdraw from the cash value of the life insurance account.

There is sometimes a waiting period after the policy is purchased during which the life insurance company can contest a death before it agrees to pay the beneficiary (many insurance companies will not pay on suicide death if it occurs within the first two years after a policy is purchased).

One example of a combined life insurance policy that is growing increasingly popular is variable universal life insurance.

Additions or Changes to a Policy

Life insurance policies can also contain riders, or provisions, based on the needs and desires of the individual. They can also be tailored to fit the needs of the individual and contain specified information and contingencies based on those needs. Some of these additions or changes can include:

  • Joint life insurance includes a permanent or whole policy that insures two or more individuals with proceeds payable on the first death.
  • Suvivorship life insurance is a whole life insurance policy that insures the lives of two individuals and is payable on the second death.
  • Single premium whole life is an insurance policy where the premium is paid in full at time of issue.
  • Modified whole life insurance charges smaller premiums for a specified period of time then increases the premiums for the remainder of the policy.
  • Preneed (or prepaid) life insurance is usually purchased by an older individual who wishes to cover funeral expenses upon death. The policy pays out first to the funeral provider with any excess paid to the beneficiary.

Other Types of Policies

There are literally dozens of additional types of life insurance policies and more coming on the market every day. The following list contains some of the more popular types of non-traditional life insurance policies that are currently available to consumers.

 


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