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Types of Life Insurance

If you've finished raising your family and paid off your mortgage and other debts, your life insurance needs are different than when you were younger. Making sure you have the right type of life insurance to fill the gap is something many struggle with. Life insurance can be divided into two basic classes: temporary and permanent.

Temporary life insurance is characterized by its designed time period that is named when the contract is initially put into force. Term Life Insurance, for example, provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value. Term life insurance is generally considered "pure" insurance, where the premium buys protection in the even of death and nothing else. Three key factors should be considered when deciding on Term Life Insurance, the benefit amount, the cost of the monthly premiums to be paid and the length of coverage.

There are three basic types of permanent insurance: whole life, universal life and endowment. Permanent Life Insurance is life insurance that remains in force until the policy matures, unless the owner fails to pay the premium when the policy is due. The policy cannot be cancelled by the insurer for any reason except fraud in the application. Permanent insurance builds a cash value that reduces the amount at risk to the insurance company and the insurance expense over time. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrendered value.

Whole Life coverage provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary benefits of whole life insurance are guaranteed death benefits, cash values, fixed annual premiums and the mortality and expense charges will not reduce the cash value shown in the policy. There are disadvantages as well. These are premium inflexibility, and the internal rate of return on the policy may not be competitive with other savings alternatives.

Sometimes erroneously referred to as Self-sustaining policies, Universal Life coverage is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. This coverage includes a cash account and interest is paid within the policy on the account at a rate specified by the company.

Endowments are policies which the cash value that builds inside the policy equals the death benefit at a certain age. The age this commences is known as the endowment age. Endowments are considerably more expensive in terms of annuals premiums than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier.

Additional life insurance products such as riders, joint life, group life, modified whole life, single premium whole life and survivorship life all add some feature desired by the policy holders. For example, a common rider is accidental death, which used to be referred to as "double indemnity" which pays twice the amount of the policy face value if death results from accidental causes, as if both a full coverage policy and an accidental death policy were in effect.

Seniors and those with special needs have different life insurance needs and often, preneed (or prepaid) arrangements are a good idea. Always consider all aspects of the contract and make sure that whatever your insurance needs, they are met in the coverage you elect.