Four Types of Life Insurance Policies Explained

By  //  June 21, 2021

Whatever age you are, it is not too early to consider getting a life insurance policy. With one in place, you can be assured that all of your final costs are taken care of and your loved ones are financially secure.

But before you start looking at different insurers, you first need to know what different types of policies are available.

How Policy Scout Can Help You Find the Best Insurance Plan for Your Needs

Looking for the right life insurance policy can be tricky. But you can find the precise type of policy to best fit your needs when you use a reputable online site to quickly compare your options. For instance, when you search for a life insurance policy with Policy Scout, you can find plans that are best suited to individuals that include, but are not limited to, the following:

  ■ Seniors or individuals who have complex health issues.

  ■ People who want a variety of customizable and flexible life insurance plans.

  ■ People looking for accelerated benefit riders.

Higher-risk individuals who want universal permanent policies.

  ■ People who require flexible options or lenient underwriting because of their medical histories or lifestyles.

 Each insurer will offer different types of plans and benefits that are catered to people with different needs, which is why it is recommended you compare various ones before deciding on the right one for your personal circumstances.

But in general, life insurance falls into four main categories: term life insurance, whole life insurance, universal life insurance, and variable universal life insurance. Here is a closer look at each type.

1. Whole Life Insurance

Whole life insurance and term life insurance are the two primary types of life insurance. Whole life encompasses the subcategories of universal and variable universal. Also known as permanent life insurance, whole life insurance pays a death benefit in the event of your death.

It does not matter if you are twenty-one or live to be a hundred, a whole life insurance policy will protect you. With traditional whole life insurance, the death benefit and the premium remain at the same level throughout the whole lifespan of the policy. As you age, the cost per $1,000 of benefit increases. That means the insurance company begins by charging a premium that is higher in the early years. Those funds are then invested to supplement the level premium to help pay the cost of life insurance when you are older.

2. Term Life Insurance

Term insurance is the simplest type of life insurance. It only pays out in the event of your death during the term of the insurance policy. Most term policies are up to thirty years. The downside to term policies is they have no other benefits. There are two primary types of term life insurance: level term and decreasing term.

The former means the death benefit remains the same throughout the policy’s lifespan. The latter means the death benefit drops over the duration of the policy; it typically does so in one-year increments. The overwhelming majority of people who get term insurance get level term insurance.

3. Universal Life Insurance

Universal life insurance is a type of permanent insurance. The main difference between it and traditional whole life insurance is universal life insurance has a flexible premium structure.

4. Variable Universal Life Insurance

 Both universal life insurance and variable universal life insurance have flexible premium payments and see a rise in cost over time. The key difference is a variable universal life insurance policy has a cash value account that does not pay a guaranteed or fixed return. In a variable universal life insurance policy, the cash value is invested in several sub-accounts, which represent assets in various asset classes. As the policyholder, you can choose which sub-accounts to invest your cash value in.