Types of Life Insurance Policies
There are a variety of life insurance policies with slight variations in how they work, but essentially they fall under two main categories---those with cash value and those without.
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Function
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The basic function of any life insurance policy is to provide a payment to the survivors of the person who dies at the time of the death to cover the cost of funeral expenses, outstanding debts and the care and maintenance of family members who were depending on the person who died for support.
Investment
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Some types of life insurance policies accumulate cash value, earn interest and can be considered an investment, rather than just an insurance policy.
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Insurance Only
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Term life insurance does not accumulate any cash value. The insured pays a premium that provides a death benefit in the event of his death during the term of the policy. When the term of the policy is up, it can usually be renewed for an additional term at an additional premium.
Insurance Plus
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Other forms of life insurance provide a life insurance benefit and accumulate cash value. These include whole life, universal life, variable universal life and variable whole life. Each of these vary in cost, guarantees of value and performance, how they are regulated and the risk of financial loss associated with each.
Guarantees
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Universal life insurance and whole life insurance are the only two with guaranteed minimum cash values at maturity.
Regulations
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Due to the nature of the investments and higher risk, variable whole life insurance and variable universal life insurance are regulated by both insurance and securities agencies, whereas the other types of policies are governed by the insurance regulatory agencies alone. You can lose money with these types of policies and even the amount of the death benefit is not guaranteed.
Cautions
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All life insurance policies are subject to varying insurability standards or guidelines. The rates of life insurance coverage vary depending on the individual's age, current health and health history, hobbies and occupation, risk factors such as smoking and drinking, and the type of policy selected. And most life insurance policies have some exclusions, so be sure to read the fine print carefully before you select the type of life insurance coverage that is best for you.
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