The number and different types of life insurance policies available on the
market can be overwhelming and confusing to choose from, especially if you
have never purchased a life insurance policy before. Understanding what
types of policies are available to you and what they can offer, even before
beginning the search, can make it easier and less time consuming. Here is
some basic information about the types of life insurance policies that you can
purchase, and how to select the one that is right for you.
Types Of Policies
There are two general categories of life insurance policies: temporary and
permanent. They both include coverage in the form of a payout to your
chosen beneficiary in the event of your death, but the additional benefits
these policies can offer you differ, namely from their investment possibilities
to providing coverage for an inexpensive premium.
Temporary Life Insurance
The most common type of temporary life insurance policy is more commonly
known as term life insurance. This type of insurance offers you death benefit
protection for the term of the policy, typically 10 or 25 years. At the time
the term expires, so does the policy, though many offer renewal options at
an increased premium. The benefit of term life insurance is that it offers
maximum payout for the lowest premiums. This is especially true the
younger you are.
Permanent Life Insurance
Whereas there is really only one type of temporary insurance policy, there
are a number of different options in the permanent life insurance market.
Whole Life Coverage—This includes guaranteed death benefits, guaranteed
cash values, and the security of a fixed annual premium.
Universal Life Coverage—This option provides you with greater flexibility in
both premiums and potential return. It still offers both a payout in the form
of life insurance coverage and the potential of a cash value to increase with
the term of the policy.
Limited Pay—This is basically permanent and term life insurance combined in
that you only pay premiums for a specific term; however, you still receive
the death benefit after the term expires, though usually at a reduced rate.
Endowment—This type of policy, which is similar to annuities, acts more as
an investment than does traditional life insurance. The principal is protected
and a payout is guaranteed, but the premiums are much higher than those of
other types of life insurance.