2 Types of Life Insurance You Should Know

1. Term Life Insurance

Term insurance is a straightforward coverage that pays benefits if the policyholder dies during the policy term. The duration varies from 5 to 30 years, and most policies have no extra benefits. According to Investopedia, you’ll find two major term life insurance premiums:

• Level term. Benefits don’t change for the entire policy term.
• Decreasing term. The benefits drop over your policy’s term in one-year increments.

Term insurance is the least expensive policy you can pay yearly. However, you won’t get any benefits if you outlive your policy’s term. 

Also, term insurance has no cash value as an investment but may include a potential for a conversion that allows policyholders to upgrade to whole life insurance. 

2. Whole Life Insurance

Also known as permanent insurance, whole life insurance promises to pay death benefits whenever you die. There’s no term to outlive, so the dependents and beneficiaries of the policyholders are guaranteed compensation upon the death of the insured individual. There are three basic whole life insurance policies: traditional whole life, universal whole life, and variable universal.

Traditional Whole Life

In traditional whole life insurance, the death benefits and premiums stay at one level. To even out the cost of insurance, carriers keep the premiums higher than claims during the earlier years to supplement costs during later years. Also, according to law, policyholders can have the high premium back as cash value once the high premium overpayments reach a certain amount.

Universal Whole Life

Universal whole life insurance offers more flexibility than whole life coverage. Policyholders can increase the death benefits if they pass a medical examination. Also, the savings vehicle is a cash value account that earns interest. 

If the money accumulates to a given point, policyholders can alter premium payments. For this reason, universal insurance can help policyholders through difficult economic situations. 

However, there’s the risk of using up all the savings, lapsing the policy, and just like that, your coverage may end. Therefore, policyholders should monitor the savings and alter premiums to avoid lapsing.

Variable Universal

Lastly, the variable life insurance combines your death protection benefits with your savings account. Holders of this policy can invest in stocks, bonds, and mutual funds, allowing their policy value to grow much faster. 



On the flip side, if the investments don’t perform, the death benefits and cash value may decrease. However, most policies have clauses that protect the death benefits from dropping below a specified limit.

Whole Versus Term: Which One Do I Pick?