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The Four Chief Types Of Life Insurance
By: Evan Davis
Life insurance, at its core, is a means to protect the financial security of
one's survivors. It is generally thought of as a way to provide income
replacement for a wage earner's survivors in the event of death. Life insurance
is purchased from an insurer by making regular payments of premiums during the
life of the insured. Upon the death of the insured, designated beneficiaries
receive a financial benefit.
Although all life insurance policies maintain those consistent characteristics,
there are different means to achieving the same end. Four distinct types of life
insurance have been developed and are in common usage.
*Term Life Insurance
Term life insurance is probably the most basic form of life insurance. Term
insurance is purchased for a specific period of time (the term). The length of
the term can vary considerably. There are term policies that are effective for
well over twenty years, whereas some only involve a one-year term. A regular
premium is paid throughout the term. If the insured dies at any point during the
term, the designated beneficiary receives the death benefit. If one survives the
term, however, there is no payout and the policy simply ends.
*Whole Life Insurance
Whole life insurance has a long history and maintains great popularity. The cost
of premiums is guaranteed for the entire time the policy in place. As premiums
are paid, the insured accumulates a cash value for the policy, with the insurer
determining the interest rate applied to that cash value. One may either "cash
out" their whole life policy, or maintain it so that benefits are paid to
survivors upon the policyholder's death. Whole life insurance policies were long
"the norm" in the insurance industry.
*Universal Life Insurance
Universal Life Insurance is considered a more flexible approach to life
insurance. The required regular premium amount can vary as long as the policy
has a cash value in excess of the policy's costs. The insured can alter the
policy's future payout while the policy remains in force, making it a flexible
insurance solution for those who may have more complicated or rapidly-changing
needs than can be addressed with term or whole life solutions.
*Variable Universal Life Insurance
Variable Universal Life Insurance takes the flexibility of universal life
coverage and adds to it by providing investment choices. The policy's cash value
is not based simply on an interest rate determined by the insurer. Instead, the
policy's value is based upon the performance of various investments. The insured
allocates his premiums among a series of investment options with a variable
universal life insurance policy.
Although all insurance policies do share common characteristics, the four
different types of insurance policies have some marked differences. Each type of
insurance policy has advantages and limitations. For some, a simple term policy
will more than suffice to meet their life insurance needs. Others may benefit
considerably from a more full-featured insurance policy that includes an
investment component and the ability to alter the nature of benefits and the
premium.
About the Author:
Evan C Davis works in Medicare customer service, and is the webmaster and owner
of Easy Insurance Finder at http://www.easy-insurance-finder.com/ Read our insurance reports online at http://www.easy-insurance-finder.com/announcements/ |
