Comparing Types of Life Insurance

In today's market, there are many different types of life insurance. Term, whole, universal, and variable policies all offer different benefits for different circumstances. Some policies are cheaper than others, and some are more flexible policies than others. Because every person is different, the individual needs of the client are important to understand before a particular type of insurance policy is selected.

Whole life insurance provides guaranteed protection for the life of the policy holder and is known as permanent insurance. Whole life policies have a cash value portion to the policy that grows tax deferred. The amount of growth is guaranteed. The premiums for this type of policy are usually kept at a level amount throughout the insurer's life and the death benefit is guaranteed.

A universal life insurance policy is a flexible version of a whole life policy. It is also a permanent policy that has a cash value portion included with it. The difference between a universal policy and a whole life policy is that the premium can be adjusted as the financial situation of the policy holder changes. The interest rate earned on the cash value portion is reset periodically by the life insurance company and is usually guaranteed not to drop below a certain value.

Variable life policies go a step further and combine the benefits of a permanent life insurance policy with the benefits of other investment products. It is the most flexible type of life insurance policy. With this type of product, the investor is allocated a cash value account in addition to the life insurance portion of the policy which can be invested in sub-accounts. Various financial instruments can be selected for investments. Usually, purchasers have access to stocks, bonds, equity funds, money market funds, and bond funds. This type of policy requires management of the sub-accounts. Because the growth of the cash value depends on the performance of the investment selected, the death benefits that are available to beneficiaries may fluctuate.

The cheapest form of life insurance is a term life policy. Unlike the other policies described above, protection is only provided for a limited period of time. Term policies do not build up cash benefits and a maximum allowable term exists, usually thirty years. A term policy is useful when the purchaser needs life insurance protection for temporary reasons, when they have costs, such as education fees or a mortgage, which will eventually go away. Although, term life insurance policies are usually less expensive than a permanent insurance policy, the premium payment will increase as the age of the purchaser increases. Premiums can be fixed for the term of the contract or they can vary, usually year to year. In general, term insurance plans are less complicated than the other types of insurance policies.

No matter which type of insurance policy is finally selected, it is also important that the policy holder reevaluates their insurance needs on a regular basis. At least once every five years, an individual should evaluate their life insurance needs. Coverage should also be evaluated a major life events, such as a marriage, a divorce, or a birth.