Co-Founder, Coastal Financial Partners Group, California
There are two basic types of life insurance: term and permanent.
Term is for temporary needs and covers a specific length of time - typically up to 30 years. Permanent or cash value life insurance is designed to last for a lifetime and, provided the required premiums are paid, cannot be outlived.
The best kind of life insurance to have is one that hasn't expired before you do! Term life insurance is very affordable but it is for short term needs. Most term life insurance reaches the end of its coverage period and expires. If you have temporary needs that won't extend beyond the coverage period, match the term period to those needs.
Otherwise consider permanent life insurance that is designed to last for your entire life. Permanent policies have variations with features and flexibility for a wide range of planning situations. Consult with a life insurance professional to design the best plan to meet your specific needs.
There are three categories of life insurance: Ordinary Insurance, Industrial Insurance, and Group Insurance. When you go to purchase a policy, you are looking for Ordinary Insurance, and it comes in the following types:
1) Term Life Insurance
This comes in Level term, Increasing Term, and Decreasing Term. But almost all policies sold now are level term, which stay at the same face amount for the full amount of the term.
Term Life is temporary coverage that expires at the end of a certain number of years, unless one is able/chooses to renew or convert them. They do not usually have any cash value and if will lapse if premiums get more than a month behind.
2) Whole Life Insurance
Comes in Straight Whole Life, Limited Pay Whole Life, and Single Premium Whole Life, named after how long one pays the premiums (the shorter the years one pays the premium, the higher the premium). There are also a number of other forms of Whole Life that differ by other features than how long the premium is paid.
Whole Life is permanent, stays in effect for one's "whole life". Has cash value that can be borrowed against or used to pay premiums. If dropped after a certain length of time will have a cash surrender value or can become a reduced paid up policy.
3) Endowment Policies
Cash values grow rapidly so that the policy endows at maturity and the face amount can be collected, even if still alive.
4) Nontraditional Life Insurance
Universal Life, Indexed Universal Life, Interest Sensitive Whole Life, and variable products belong in this category. They all have features that make them different from one another, but all have the ability to provide permanent coverage and have cash value.
The two main types of life insurance are Term and Permanent.
Subtypes under Term include Return of Premium (ROP) Term that returns all the premiums if the insured person outlives the number of years in the Term policy. It includes hybrid policies that are a combination of Term and Accidental Death, or Term and Universal Life. The premiums for Term policies jump very high after a set number of years.
Subtypes under Permanent life insurance include Whole Life, Universal Life, Indexed products and Variable products. When funded properly, these will be in effect upon death at any age. Permanent policies can have a guaranteed premium but not all permanent policies are guaranteed not to lapse at a level premium.
They also have more choices of payment, such as single premium policies (paid for with a lump sum) or limited pay policies (paid in fewer years than if one paid the premium for life).
There is annual renewable and guaranteed level term life insurance. Permanent life insurance has two actuarial policy platforms: participating whole life insurance and current assumption universal life. Universal life has three basic crediting methods: interest rate, index and separate equity/bond sub account performance.
The life insurance spreadsheets from the brokerage community are an excellent starting place to explore the life insurance company that best suits your financial profile, risk tolerance and economic goals. The spreadsheets are divided into two macro categories: Term Life Insurance and Permanent Life Insurance.
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Term is for temporary needs and covers a specific length of time - typically up to 30 years. Permanent or cash value life insurance is designed to last for a lifetime and, provided the required premiums are paid, cannot be outlived.
The best kind of life insurance to have is one that hasn't expired before you do! Term life insurance is very affordable but it is for short term needs. Most term life insurance reaches the end of its coverage period and expires. If you have temporary needs that won't extend beyond the coverage period, match the term period to those needs.
Otherwise consider permanent life insurance that is designed to last for your entire life. Permanent policies have variations with features and flexibility for a wide range of planning situations. Consult with a life insurance professional to design the best plan to meet your specific needs.
1) Term Life Insurance
This comes in Level term, Increasing Term, and Decreasing Term. But almost all policies sold now are level term, which stay at the same face amount for the full amount of the term.
Term Life is temporary coverage that expires at the end of a certain number of years, unless one is able/chooses to renew or convert them. They do not usually have any cash value and if will lapse if premiums get more than a month behind.
2) Whole Life Insurance
Comes in Straight Whole Life, Limited Pay Whole Life, and Single Premium Whole Life, named after how long one pays the premiums (the shorter the years one pays the premium, the higher the premium). There are also a number of other forms of Whole Life that differ by other features than how long the premium is paid.
Whole Life is permanent, stays in effect for one's "whole life". Has cash value that can be borrowed against or used to pay premiums. If dropped after a certain length of time will have a cash surrender value or can become a reduced paid up policy.
3) Endowment Policies
Cash values grow rapidly so that the policy endows at maturity and the face amount can be collected, even if still alive.
4) Nontraditional Life Insurance
Universal Life, Indexed Universal Life, Interest Sensitive Whole Life, and variable products belong in this category. They all have features that make them different from one another, but all have the ability to provide permanent coverage and have cash value.
Subtypes under Term include Return of Premium (ROP) Term that returns all the premiums if the insured person outlives the number of years in the Term policy. It includes hybrid policies that are a combination of Term and Accidental Death, or Term and Universal Life. The premiums for Term policies jump very high after a set number of years.
Subtypes under Permanent life insurance include Whole Life, Universal Life, Indexed products and Variable products. When funded properly, these will be in effect upon death at any age. Permanent policies can have a guaranteed premium but not all permanent policies are guaranteed not to lapse at a level premium.
They also have more choices of payment, such as single premium policies (paid for with a lump sum) or limited pay policies (paid in fewer years than if one paid the premium for life).
The life insurance spreadsheets from the brokerage community are an excellent starting place to explore the life insurance company that best suits your financial profile, risk tolerance and economic goals. The spreadsheets are divided into two macro categories: Term Life Insurance and Permanent Life Insurance.