Their are many types of life insurance
to fit individual needs and circumstance. The following are some of
the basic types of life insurance available.
Term Life Insurance — The simplest form of life insurance. You purchase
coverage for a specific price for a specified period. If you die during
that time, your beneficiary receives the value of the insurance policy. There
is no investment component.
Whole life Insurance — Similar to term, but you purchase the insurance policy to
cover your "whole life" not just a set period. Insurance premiums
remain level throughout the life of the insurance policy, and the company invests
at least a portion of your premiums. Some firms share investment proceeds
with policyholders in the form of a dividend. Many companies will
offer "a relatively low guaranteed rate of return," but
in reality pay at a rate in excess of the guarantee.
Universal Life Insurance — You decide how much you want to put in over
and above a minimum insurance premium. The company chooses the investment vehicle,
which is generally restricted to bonds and mortgages. The investment
and the returns go into a cash-value account, which you can use against
your insurance premiums or allow to build. With some universal life policies, sometimes called Type
I or Type A, the cash account goes toward the face value of the insurance policy
on the death of the policyholder. With a second variety, sometimes
called Type II or Type B, the beneficiary receives the face value
of the insurance policy plus all or most of the cash account. While Type II
is meant to provide a partial hedge against inflation, it demands
higher insurance premiums as you get older than Type I.
A variation of a universal life insurance policy, often called universal variable
life insurance, allows policyholders to choose investment vehicles.
Variable Life Insurance — With a variable life insurance policy, there is usually a wider
selection of investment products, including stock funds. As with a
universal policy, returns on investments can offset the cost of insurance premiums
or build in the account. And depending on the type of variable life insurance policy, the
beneficiaries will either receive the face value of the insurance policy or
the face value plus all or part of the cash account. |
