Types of life insurance policies

Insurance is of two kinds - term life and whole life. Whole life insurance is also known as permanent life insurance and has many subcategories under its umbrella, such as the traditional whole life, universal life, variable and variable universal life, respectively.

According to recent data, around 6.4 million term life insurance policies were purchased by individuals last year, whereas the number of whole life insurance policies procured was 7.1 million. Affordable life insurance policies bought for individuals differ from life insurance policies purchased for groups. The write-up focuses on individual life insurance policies.

Term Life Insurance

This is the simplest type of insurance. It is paid out in the form of death benefit, i.e. if the death takes place while the term is still in force. The term varies from one to 30 years. Other than the death claim, majority of the term policies do not offer any other benefits.

Level term and decreasing term are the two kinds of term life insurance. Level term is the common one in which the death benefit remains the same for the whole duration of the policy. According to a data, 97% of the term policies bought were level term.

Decreasing term insurance implies that over the period of the policy's term, the death benefit falls. And this occurs mostly in one-year increments.

Whole Life or Permanent Life?

In permanent or whole life insurance, a death benefit is given out when you die. This means you will be entitled for a death benefit even if you die as late as 95. Traditional whole life, universal life, and variable universal life are the three main forms of whole life insurance.

In traditional type of insurance, the death benefit and the premium amount both remain the same over the course of policy. As the age of the insured increases, the price per $1000 benefit also rises. This means that the policy becomes very expensive by the time the insured turns 80 or more. The insurer can take an insurance premium which rises every year, but this would make it very difficult for the people to have insurance during old age. That is why, in the starting years, the premium is kept higher to cover the cost of the insurance.

If you go by the law, the excess payments should be accessible to the owner of the policy as cash value when it reaches a specified amount. This can be done when the policy holder is no longer interested in carrying on with the primary plan. Cash value is not an added benefit, but just an option.

Whether you choose term or whole life insurance, what matters is that you have an insurance coverage to take care of your family's financial needs when you are not around.