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Whole Life

Often referred to as permanent coverage. These are legal contracts between the insurance company and the owner of the policy or contract. This policy is designed to guarantee insurance protection for the entire life of the insured. These policies generally will have level premiums and will build cash values over time. These cash values grows on a tax deferred basis, and can also be used to provide living benefits either through tax free loans or from various riders such as those that are designed to help pay costs associated with a terminal illness or some long term care related expenses. Different companies offer various products as well as an assortment of riders to help protect against different types of risks.

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Universal Life

A variation on the older whole life type of policies. Universal life, also known as flexible premium life, is actually a  combination of term insurance and an investment account. This policy offers flexibility in both the amount and the frequency of premium payments. Also, the amount of coverage can be adjusted up or down as needs change and depending on the continued insurability of the insured. The company will generally guarantee to pay a minimum rate of return on the funds held within the investment account and will also pay a higher, but not guaranteed, current rate of interest. Since this type of policy was initially introduced there have been many newer variations introduced by different companies. One of the most recent universal life products to be introduced is known as Indexed Universal Life. The rate of return credited within this type of product is tied to the performance of one or more market indexes, but the owner’s policy cash values are never invested directly in the market, so are not subject to loss during a market downturn.

With variable universal life your cash value is invested directly in the market by one or more sub accounts in the product.

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Term Life

Often referred to as “pure protection”. This coverage is designed to only provide a death benefit. It is not priced to allow the build-up of cash values, and is generally designed to offer a level premium for a set length of time or “term”. Today most companies portfolio of term products consists of policies with a premium guaranteed to remain level for set period of time such as10, 20 or 30 years. A great deal more term coverage can be purchased per premium dollar than can be purchased when buying whole life or universal life. The drawback with this type of product is that once the guaranteed premium period comes to an end the renewal premiums that are then required to keep coverage in force will increase dramatically. Many companies will allow the insured to convert all or a portion of their term coverage to one or more of their permanent products during the level term period without having to be medically approved for the new policy.