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Types of Life Insurance


In its most basic form, life insurance comes in two varieties: term and permanent. The principal difference between the two is whether or not the policy is structured to provide something called non-forfeiture value, more commonly known as a "cash value."

Term insurance policies do not provide for cash value. They are designed to meet a variety of short term or temporary needs, such as covering the term of a loan or mortgage, for example. Modern term insurance comes in two common forms: yearly renewable and extended term. Yearly renewable policies typically offer the insured a level death benefit with the ability to renew the policy each year at a slightly higher premium payment, but without having to prove insurability with each renewal. Extended term, however, offers both level death benefit and premium payments for a fixed period of time, for example 5, 10, 15 or even 20 years. While proving one's insurability is not usually required to renew an extended term policy, premium payments can rise significantly on renewal.

As the name implies, Whole Life insurance is intended to provide coverage for a person's "whole life." In order to do so, forms of whole life insurance rely heavily on overpayment of premiums in early years, which, coupled with interest, and often dividend payments, seek to fund underpayment of premiums in later policy years. While still available today, Whole Life insurance has been modernized by such products as Universal Life, a modern, often more flexible variety of permanent insurance.

Like Whole Life, Universal Life is intended as a long-term, or permanent, insurance solution. However, different than Whole Life, Universal Life offers the policyholder more flexibility in its overall design, which sometimes gives Universal Life an overall competitive advantage when compared to traditional Whole Life. Some varieties of Modern Universal Life even offer riders such as a "no-lapse" guarantee. If a policy has a "no-lapse" rider, so long as the policy owner continues to make all scheduled premium payments, on time, the policy's death benefit is guaranteed, regardless of underlying investment performance.

Universal Life comes in three varieties: fixed, variable and equity-indexed. Depending on the variety of Universal Life selected, the performance of the policy's cash value relies heavily on either a fixed-guaranteed interest rate, stock market performance through a variety of investment related sub-accounts or a fixed-equity indexed account, and does not rely on dividend payments from the insurer, as do many traditional Whole Life policies.

Regardless of your need, there is a type of life insurance designed to fit both your need and your budget, but make no mistake, not all life insurance policies are created equal. Be sure to consult a licensed insurance professional before purchasing a life insurance policy. Errors in coverage can result in costly mistakes, both to you, and those you care about.

To find out more about the various forms of life insurance policies designed to meet your financial needs, call us today or speak with your Alliance America Agent.