Basic Life Insurance Plans

Last updated: March 29, 2016

5 Basic Plans

All life insurance policies agree to pay an amount of money if you die, but not all policies are the same. There are many variations of life insurance plans, but the two most common are 'term' and 'whole life' insurance.

1. Term Life Plans

This plan provides coverage for a period of one year or more.

  • Benefits will be paid if you die during that period.

  • Some term insurance can be renewed at the end of the term.

    • The premium rates usually increase with your age at each renewal.

2. Whole Life Plans

This plan gives lifelong protection if you pay your premiums.

  • Whole life plans have level premiums.

    • This means the premiums do not increase as you age.

  • These policies are meant to be sustainable over a long period of time. They should be used as such.

    • These plans accumulate cash value over time.

    • If you don’t intend to keep a policy long term, whole life insurance could be the wrong type of insurance for you.

The Following Are Some Common Variations of Whole Life Insurance:

3. Universal Life Plans

This plan allows you to pay premiums at any time after your initial payment, and in virtually any amount. (This is often subject to certain minimums and maximums).

  • You also can increase or decrease the amount of the death benefit more easily than under a traditional whole life policy.

  • Universal life insurance was created for people who wanted to buy term insurance at a lower premium cost and invest the difference.

    • In this plan, the amount of premium not used to purchase your death benefit or pay other charges accumulates as interest in a cash value-type account.

      • The interest rates paid on this money may vary with the market.

      • Unlike a regular whole life policy, universal life often have surrender penalties for early withdrawal.

4. Indexed Universal Life Plans

This plan is a more recent type of universal life insurance.

  • Like more traditional universal life, this allows you to earn interest on your premium payments.

  • Unlike traditional plans, it offers the additional option of earning interest using a formula based on changes in a market index to which the policy is linked.

    • Such as the S&P 500 or the Nasdaq 100.

  • Indexed universal life often caps the maximum return. But, also provides a guaranteed minimum interest rate or floor.

  • You do not buy shares of any stock or index when you buy an indexed universal life policy.

5. Variable Life Plans

This plan provides death benefits and cash values that vary with the performance of an underlying portfolio of investments.

  • You can choose to divide your premiums among a variety of investments that offer varying degrees of expected risk and reward.

  • You will receive a prospectus in conjunction with the sale of a variable plan.

The cash value of a variable life policy is not guaranteed. You bear the risk.

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