Each of the two basic types of life insurance--term life insurance and non-term or permanent life insurance--has several variations. Term life insurance is for a specified period of time. Whole life insurance covers the life of a person, however long that life is.
Term Life Insurance generally provides that if premiums are paid, beneficiaries of the insured person will receive a set amount of money if the insured person dies during a specified term or period of time such as one, five, ten, or fifteen years. At the end of that time span, the policy and its coverage end. Variations of term life insurance include:
- Non-renewable Term Life Insurance: Once the term of the policy ends, the policy ends.
- Renewable Term Life Insurance: While the policy ends at the expiration of its term, the policy may be renewable either automatically or upon requalification of the person being insured through a satisfactory medical examination or through meeting other requirements.
- Level Term Life Insurance: During the period of time that the insurance is in force, the amount of any benefit that will be paid upon the death of the insured does not vary.
- Decreasing Term Life Insurance: During the policy period, the amount of the payment upon the death of the insured becomes smaller as time passes.
Non-Term Life Insurance generally provides that an amount will be paid to beneficiaries whenever the insured person passes away. Variations of non-term or permanent life insurance include:
- Whole Life Insurance: Also called straight life insurance, whole life insurance provides for a set payment upon the death of the insured regardless of the number of years that the policy is in force. To maintain the policy in force, premiums must be paid (depending upon the policy, in one lump sum, in specified amounts for a specified period of time, or in specified amounts for the life of the policy). A portion of the premiums will be invested, and the policy will build up a loan value allowing the policyholder to borrow against the policy and a cash return value if the policy is ended.
- Universal Life Insurance: This variation of permanent insurance allows the policyholder from year to year to vary either or both of the amount of the insurance company's payment upon the death of the insured or the premiums paid for the insurance. A reserve is built up that can be borrowed against or returned if the policy is ended.
- Variable Life Insurance: This variation of permanent insurance allows investment of policy reserves (that can be borrowed against or cashed out if the policy is ended) in stocks and other vehicles that have more investment risk than money market instruments. An additional variation allows the policyholder to direct the investment of policy reserves.
- Single Premium Life Insurance is available as an estate planning tool. A single and relatively large premium is paid for the policy. The benefit of the policy is paid to the beneficiaries without the need for further and continuing premium payments to maintain the coverage.
Further variations may be available to meet the differing needs of policyholders. Estate planning, insurance, financial, and legal advisors should be able to assist in determining the best coverage suitable to the particular needs of each insured or policyholder.
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