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Types of Life Insurance Policies

Life Insurance
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There are six major types of life insurance policies. Each of the policies has different benefits and disadvantages. There is no one single right life insurance policy, as it depends on your present and projected future financial situation. However, understanding each of the six types of life insurance policies is essential to help you determine which is best for you.

Types of Life Insurance Policies

The six major types of life insurance policies include:

  • Guaranteed Premium Whole Life Insurance
  • Universal Life Insurance
  • Variable Life Insurance
  • Variable Universal Life Insurance
  • Term Life Insurance
  • Survivorship Life Insurance

Guaranteed Premium Whole Life Insurance

Guaranteed premium whole life insurance provides you coverage for the whole of your life, as well as the opportunity to save for retirement. With guaranteed premium life insurance, you pay the same amount every month to insure you. The amount is based on premiums averaged out over the course of your life. Your premium is higher than the cost to insure you, and the additional is invested to create a cash value. Your policy can then pay you retirement income, and when you die, your beneficiaries will receive a death benefit- no matter how old you are when you die- as long as the policy is current.

Universal Life Insurance

Universal life insurance is very similar to whole life, in that a death benefit is always paid no matter when you die, and in that you have an investment feature in which your money is invested for you. However, unlike guaranteed premium where your monthly payments are fixed, with universal life, you get to make payments in any amount within a set range. If you make lower or higher payments, however, your cash value and death benefit may be impacted.

Variable Life Insurance

A variable life insurance policy is similar to a whole life policy- you have fixed premiums and your policy has a cash value. However, with a variable life insurance policy, you get to determine how the cash you’ve accrued is invested.

Variable Universal Life Insurance Policy

A variable universal life insurance policy combines the features of a universal policy and a variable policy. You get to pay premiums that are as high or low as you want within a set range, and you get to determine how the money is invested.

Term Life Insurance Policy

With a term life insurance policy, your premiums are fixed for the life of the policy. However, the policy does not extend for your whole life. You choose a term that you want coverage for- anywhere between five and thirty years usually- and your premiums are based on the average annual cost to insure you over that term. If you die within the term you selected, your death benefit is paid. If you don’t, you can either renew or switch to a whole life policy at the end of the term, or let your policy lapse. There is no cash value or investment component with term policies, and your premiums are lower.

Survivorship Insurance

With survivorship insurance, two people- usually spouses- are insured. The policy does not pay until the second person dies. These are commonly used in estate planning to help heirs pay estate taxes on large inheritances.

Choosing a Policy

Choosing from among the types of life insurance policies is a personal decision. Consider your ability to pay premiums, your family’s need for protection, and your investment plans before making a choice. A financial advisor or planner can also help you choose from among the types of life insurance policies.

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