Types of Life Insurance

To simplify, there are really two types of life insurance policies

1.  Term:  Just life insurance with no bells or whistles.  Life insurance over a specified time period and does not build a cash value.

2.  Term with cash value (whole life, universal, variable life):  This is simply life insurance with a savings benefit.

Annual Renewable Term (ART):  Face amount of insurance remains the same and the rate per thousand increases each year

                    Current Rate:  current annual premium

                    Guaranteed Rate:   The highest rate

                    Set back:  rate will be set back to a lower one if you have a physical and prove you are healthy

Decreasing Term:  Premium remains the same year to year but the amount of insurance decreases

Level Premium Term:  Premium remains the same and the amount of insurance (face amount) remains the same

Whole, Universal, and Variable:  Life Insurance + Savings Plan

Whole Life (aka ordinary life):  face amount and premiums remain the same; with whole life, there is a cash surrender value of the policy-- so, whole life is the same as  

                    Cash Surrender Value or Cash Value:  amount available in cash upon cancellation of a policy

Universal Life:  Similar to whole life except the policy holder selects from a variety of investments; both the premium and death benefit can change

Variable Life:  Premiums are fixed-- the amount of death benefit is determined by the performance of the investments

Deciding which type of life insurance can be very confusing.  Because of the confusion, you must have a very strong understanding of time value concepts if you choose a whole life, universal life, or variable life policy.  Failure to run the numbers could result in a very poor decision that will cost you thousands of dollars.

Common Optional "Riders" (usually not a good idea)

1.  Waivers of premium if you become disabled

2.  Spousal Rider:  Coverage that includes a spouse

3.  Double Indemnity/Accidental Death Rider:  Double the payout if the death is accidental
 

Term insurance can be a very good approach.  Why?

Again, this is a time value of money problem.

    Cash value policies can be much more expensive for the same amount of insurance.

Positive feature you want to consider

Renewable:  allows you to renew without going through an application process.  This is good because if you become terminally ill you don't want your policy canceled.

Term vs. Whole Life Example (Excel)