Types of Life Insurance

A life insurance policy can help provide income in the event a family member dies prematurely. A life insurance policy may also serve as an investment vehicle, and can help individuals save on taxes. Life insurance policies are generally divided into five types.

Term Life Insurance

Term life insurance policies are taken out for a specific time frame, ranging from 1 to 10 or even 30 years. These policies are designed to provide a given sum to a designated person in the event the policy holder dies. Term policies do not accrue value. The policy holder generally pays a given sum of money each year in return for guaranteed lump sum. After the term of the insurance policy is up all benefits expire unless renewed.

Whole Life Insurance

Whole life insurance is designed to be permanent life insurance. This means that no matter when the policy holder dies, the policy will still pay a sum of money. It accrues cash value that the policy holder may borrow against as premiums are paid.

Accidental Death Life Insurance

Accidental death life insurance is designed to pay a give sum of money should the policy holder die in an accident. Accidental death life insurance is generally much cheaper than other forms of life insurance because the terms of payout on the policy are very specific.

Universal Life Insurance

Universal life insurance offers the policy holder a combination of options. Policy holders may increase or decrease the sum they wish to pay on a yearly basis, as well as the amount of money they wish for the policy to pay when they die.

Variable Life Insurance

Variable life insurance offers a savings account as well as a life insurance policy. Users invest in a market-based savings account as well as have a guaranteed payment upon death. The policy can be tapped into to provide cash if needed as well. This type of policy may have tax benefits to purchasers.