Types of Life Insurance Pt 5

A life insurance policy is a legally binding agreement between the policy holder, and the insurance company. The policy is the document that describes the details of the contract between the parties involved.

There are two basic types of life insurance, temporary and permanent. These two types can be separated into separate subdivisions. Namely: endowment, term, universal, variable universal, and whole life.

Endowment:
Endowment policies are contracts that build up cash value. Endowments are a permanent option. This value equals the death benefit, at a given age. The endowment age is a pre established age that the policy pays the face value. The advantage is that the endowment is paid, whether the insured lives or dies, providing the insured lives to a predetermined, specific date. This type of policy could be considered a form of retirement plan.

Term Life Insurance:
Term life insurance policy is based entirely on a specific term. The term is a temporary situation. The insured purchases the plan for a fixed premium, and a fixed term. At the end of the term, usually 5 to 30 years, the insured may purchase an additional term. At this point, the premium may increase, or the benefit may decrease.. This type of life insurance does not generate income at a later date. It is only payable in the event of a death.

Universal Life Insurance:
Universal life insurance was created in order to offer a greater flexibility option in terms of premium payments as well as the probable high rate of return. Universal life is a permanent solution. A universal plan typically includes a cash account. A portion of the premiums is added to the cash account. This could be considered as another form of a retirement investment. The policy itself indicates a either fixed or a variable interest rate on the insured’s investment.

Variable Universal
Variable universal life insurance is a type of insurance that has its advantages with respect to tax exemption. The policy holder creates an account with the insurer. The insurer then creates an account with a financial expert, usually within the same company. The account is then used to buy stocks. In the event that the stocks that the policy holder does well, then the insurance premiums are paid within the accounts. If the investments do not do well, it is up to the policy holder to make the payments himself. The advantage is that the policy holder can generate capital gains, without a tax liability. This is a permanent option.

Whole Life Insurance
The Whole life option is a basic plan. The insurer provides a table of what the policy is worth and when. The premiums are constant. The policy holder can opt to purchase Riders, which will provide maximum benefits, in the event of an accident, and the like.