There are two basic types of life insurance: Term insurance and permanent life insurance. Both are described in detail below.
Term insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions. Term insurance generally offers the largest insurance protection for your premium dollar.
There are two basic types of term life insurance policies level term and decreasing term. Level term means that the death benefit stays the same throughout the duration of the policy. Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy’s term.
In 2003, virtually all (97 percent) of the term life insurance bought was level term. Common types of level term are:
The most popular type is now 20-year term. Most companies will not sell term insurance to an applicant for a term that ends past his or her 80th birthday.
If a policy is renewable, that means it continues in force for an additional term or terms, up to a specified age, even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy.
Generally, the premium for the policy is based on the insured person’s age and health at the policy’s start, and the premium remains the same (level) for the length of the term. So, premiums for 5-year renewable term can be level for 5 years, then to a new rate reflecting the new age of the insured, and so on every five years. Some longer term policies will guarantee that the premium will not increase during the term; others don t make that guarantee, enabling the insurance company to raise the rate during the policy’s term.
Some term policies are convertible. This means that the policy’s owner has the right to change it into a permanent type of life insurance without additional evidence of insurability.
In most types of term insurance, including homeowners and auto insurance, if you haven t had a claim under the policy by the time it expires, you get no refund of the premium. Your premium bought the protection that you had but didn t need, and you ve received fair value. Some term life insurance consumers have been unhappy at this outcome, so some insurers have created term life with a return of premium feature. The premiums for the insurance with this feature are often significantly higher than for policies without it, and they generally require that you keep the policy in force to its term or else you forfeit the return of premium benefit. Some policies will return the base premium but not the extra premium (for the return benefit), and others will return both.
Permanent Life Insurance
Permanent life insurance goes by several names, such as universal life, variable universal Loudon online payday loans life and whole life. Permanent insurance provides long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.
Whole life/permanent insurance pays a death benefit whenever you die even if you live to 100 years old! There are three major types of whole life or permanent life insurance traditional whole life, universal life, and variable universal life, and there are variations within each type.
Whole or ordinary life -This is the most common type of permanent insurance policy. It offers a death benefit along with a savings account. If you pick this type of life insurance policy, you are agreeing to pay a certain amount in premiums on a regular basis for a specific death benefit. The savings element would grow based on dividends the company pays to you.