Types of Life Insurance

Life Insurance

All life insurance policies are agreements (contracts) between you and an insurance company. As intangible products, they represent a promise from the insurance company to compensate you under certain conditions in exchange for a premium.

While there are many types of life insurance, each of them can be categorized as either term insurance of permanent insurance. We have briefly outlined the two categories, and the different types of plans offered within each group.




Term vs. Permanent

  • Term Insurance

    Term insurance provides coverage for a fixed period of time, commonly referred to as the “term.” A typical term policy will provide coverage anywhere between 5- 30 years. Once the specified term is over, the coverage is no longer provided to the insured (or is provided at a very high cost if the insured wishes to continue coverage). Term insurance is the cheapest form of life insurance because it offers pure death benefit protection for a limited time period and does not accumulate any cash value. However, for an additional cost, some term policies do offer a return of premium for insureds who survive the length of the term.

  • Permanent Insurance

    Permanent insurance plans provide coverage for the life of the insured, as long as premiums are paid according to schedule.  The distinctive feature permanent policies provide is that they accumulate cash value. Because of this, and because they provide coverage for the duration of a lifetime, they are more expensive than term insurance. Another feature of permanent insurance is its favorable tax treatment. Favorable tax treatments include tax deferred cash value growth and generally tax free access to the cash value. Finally, all types of permanent insurance policies can be structured in many different ways to achieve different goals.

Types of Permanent Plans

  • Whole Life

    This is oldest and most prevalent form of permanent life insurance. Whole life plans require specified premium payments and in exchange offer strong guarantees.. All whole life policies offer guaranteed cash value growth, and participating whole life policies have the potential to earn dividends.

  • Universal Life

    Universal life insurance policies offer more flexibility than whole life policies. They are considered unbundled products because the fees, expenses, interest earnings, etc. are clearly shown. Premium contributions may be flexible.  They can be structured in many ways, for example to accumulate cash very efficiently or to guarantee a permanent death benefit for a relatively low cost. The interest rates credited to cash values generally will be similar to high quality medium to long term bonds.

  • Indexed Universal Life

    Indexed universal life insurance is similar to traditional universal life (flexibility, transparency, etc.), with the main difference being how interest is credited. Instead of crediting a fixed or declared rate, indexed universal life credits interest based on the change in some market index (without actually being an investment in the market). This provides potential for additional interest crediting, especially long term. In exchange for this, the guarantees on these policies are typically lower.

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