There are many different life insurance options available on the market, the most commonly known of which are Term Life and Permanent Life coverages. There are different types of insurance options that fall within these categories, which you can learn about below.
Term Life Insurance
Term Life Insurance offers only death benefit protection and not the cash value that builds up within the insurance policy. It is offered for a set length of time, such as 10, 15, 20, 25, 30 years, or even longer. If you purchase a level term life policy, your premium will remain the same over the course of the policy.
Increasing and Decreasing Term Life
Some types of term life insurance include the death benefit that goes down over time, also known as decreasing term life policies. When the death benefit reaches zero, the policy ends. On the other hand, there are increasing term life policies, where the death benefit increases over time.
Permanent Life Insurance
Permanent life insurance offers both the death benefit and the cash value component. The different types of permanent life insurance include whole life, universal life, variable life, and variable universal life.
Whole Life Insurance locks the premium amount for the entire duration of the policy. It is a useful policy for people on a budget. The cash value of whole life insurance grows on a tax-deferred basis and only gets taxed when it is withdrawn. It can be withdrawn at any point and for any reason.
Like whole life coverage, Universal Life Insurance provides both death benefit and the cash value component with the cash value growing tax-deferred. The difference between the two is the inflexibility of universal life coverage, as it allows the policyholder to decide which part of the premium goes toward the death benefit and which part goes toward the cash value.
Offering the same benefits as whole life and universal life coverages, Variable Life Insurance also gives the policyholder the ability to use investment opportunities like equities, which means the cash component of the policy will grow more than the funds in whole life coverage. However, it also means more risk because of the fluctuations of the equities market.
Variable Universal Life
Variable Universal Life policy is similar to a regular universal life policy, but the policyholder can use the cash component of the policy and invest it in mutual funds. Moreover, there is not guaranteed minimum cash value on this coverage.