Types Of Life Insurance Available

Life insurance comes in a variety of different types but can be divided into two distinct categories--protection policies and investment policies. A protection policy is designed to provide a cash benefit when a certain event happens, such as death among others and typically in one lump sum payment to the beneficiary. An investment policy is to facilitate the growth of capital by paying premiums.

There are three basic parties to a life insurance policy—the insurer (insurance company) the insured and the policy holder. The policy holder and the insured are often the same person, but if a spouse buys a policy on their spouse then one spouse is the insured and one is the policy holder. The policy holder makes the premium payments to the insurer. When the insured party passes away, the beneficiary receives the proceeds of the policy. The policy holder designates who the beneficiary will be and in most cases, can change the beneficiary during the term of the policy.

Life insurance can be divided into two basic classes—temporary and permanent and subclasses—term, universal, whole life, variable, variable universal and endowment life insurance.
Temporary or term life insurance only provides coverage for a specific period of time for a specified premium. This policy is a protection policy only and does not accumulate a cash value. Term life insurance buys protection for the death of the insured and nothing further. Term insurance premiums are generally lower because the risk of death within the term is low.

Permanent life insurance is a policy that remains in effect until it pays out upon the death of the insured unless it is canceled due to non-payment. Permanent life insurance builds a cash value that reduces the risk to the insurance company over a period of time. There are three types of permanent life insurance—whole life, universal life and endowment.

Whole life insurance has a level premium throughout the contract and a cash value table that is guaranteed by the company. The death benefits, cash values, annual premiums and mortality and expense charges don't reduce the cash value in the policy making this type of life insurance advantageous. The chief disadvantage of whole life insurance is inflexibility and the rate of return not being as competitive as other savings alternatives.

Universal life insurance is a newer type of life insurance that provides full permanent coverage with some flexibility in premiums and a higher rate of return. This type of policy also creates a cash account which is increased with the premiums.

Endowment life insurance policies build up a cash value in the policy which equals the death benefit at a specific age, known as the endowment age. Endowment policies are typically more expensive than other types of life insurance policies because the premium period is shorter and the endowment date is earlier.

There are many types of life insurance policies for you to choose from, but these are the basic types. All life insurance policies have clauses and restrictions in them that could void them for pay-out, such as committing suicide would most often void the policy and no pay outs would be made to the beneficiary. Check with your insurance agent about the type of policy that is best for you.