The 5 Different Types Of Life Insurance

If you're like I used to be, you can get confused with all the different life insurance policies. Trying to understand what is what can be difficult at times. Here's an easy to understand look at the 5 different types of life insurance and what they are.

Annual Renewable Term Policy

Without a doubt, this is the most typical form of life insurance sold. With its level death benefit it is generally used to satisfy any outstanding bills and debts in the unfortunate event of your passing away. This life policy is relatively inexpensive for younger people. As you get older the more expensive the policy costs. Annual renewable term life is the purest form of life insurance available.

Decreasing Term Life Policy

A decreasing term life policy decreases each year that the policy is in force. Why would you need a policy like this? It's mainly used to pay off a mortgage in the event of your death. Every other type of life insurance other than decreasing term has a level death benefit.

5-Year and 10-Year Term Life Policies

5-year, or 10-year term life policies are for people who need level protection for a set number of years only. They are generally very inexpensive and are non-renewable.

15-Year and 20, 25, and 30-Year Term Life Policies

More of these term policies combined are sold than any other type of term life insurance. You can choose the length of term life coverage you need and pay a set level premium for that number of years.

These policies work very well with families with children. For example: you have a child that is 5 years old and you want to be sure that your spouse and child are taken care of in the event of your death. Your family will need to have sufficient cash on hand to not only meet the day to day needs of life, but to also have enough for your child’s education. This can be a substantial amount of money.

A 15 or 20-year term life policy would fill this need perfectly. The premiums for this type of policy are also very affordable.

Whole Life Policies

This category also includes universal life, variable universal life, and variable whole life insurance policies. These life insurance policies will cost you much more per month with their premiums, but they also help you accumulate cash. They are basically life insurance with a savings account attached.

Premiums on whole life are set at the time you purchase the policy. Your age and health will determine the amount of your premium. As you pay your premiums you’ll also be building cash value in your policy. Although the returns are not as high as you can get with other investments, you also have the life insurance benefit in the event of your death.

Variable life, and variable universal life policies, can give you a higher return due to their rates of return being based on various investments. The sales of these life policies are restricted, with a NASD license needed by any agent selling them.