Types Of Life Insurance Available

Life insurance comes in a variety of different types but can be
divided into two distinct categories--protection policies and
investment policies. A protection policy is designed to provide a cash
benefit when a certain event happens, such as death among others and
typically in one lump sum payment to the beneficiary. An investment
policy is to facilitate the growth of capital by paying premiums.

There are three basic parties to a life insurance policy—the insurer
(insurance company) the insured and the policy holder. The policy
holder and the insured are often the same person, but if a spouse buys
a policy on their spouse then one spouse is the insured and one is the
policy holder. The policy holder makes the premium payments to the
insurer. When the insured party passes away, the beneficiary receives
the proceeds of the policy. The policy holder designates who the
beneficiary will be and in most cases, can change the beneficiary
during the term of the policy.

Life insurance can be divided into two basic classes—temporary and
permanent and subclasses—term, universal, whole life, variable,
variable universal and endowment life insurance.
Temporary or term life insurance only provides coverage for a specific
period of time for a specified premium. This policy is a protection
policy only and does not accumulate a cash value. Term life insurance
buys protection for the death of the insured and nothing further. Term
insurance premiums are generally lower because the risk of death
within the term is low.

Permanent life insurance is a policy that remains in effect until it
pays out upon the death of the insured unless it is canceled due to
non-payment. Permanent life insurance builds a cash value that reduces
the risk to the insurance company over a period of time. There are
three types of permanent life insurance—whole life, universal life and
endowment.

Whole life insurance has a level premium throughout the contract and a
cash value table that is guaranteed by the company. The death
benefits, cash values, annual premiums and mortality and expense
charges don't reduce the cash value in the policy making this type of
life insurance advantageous. The chief disadvantage of whole life
insurance is inflexibility and the rate of return not being as
competitive as other savings alternatives.

Universal life insurance is a newer type of life insurance that
provides full permanent coverage with some flexibility in premiums and
a higher rate of return. This type of policy also creates a cash
account which is increased with the premiums.

Endowment life insurance policies build up a cash value in the policy
which equals the death benefit at a specific age, known as the
endowment age. Endowment policies are typically more expensive than
other types of life insurance policies because the premium period is
shorter and the endowment date is earlier.

There are many types of life insurance policies for you to choose
from, but these are the basic types. All life insurance policies have
clauses and restrictions in them that could void them for pay-out,
such as committing suicide would most often void the policy and no pay
outs would be made to the beneficiary. Check with your insurance agent
about the type of policy that is best for you.