What Are the Main Types of Life Insurance?

Before you start off on your quest to buy a life insurance policy, you need a short introduction to the main types. The first (and most affordable) is called term life insurance. You pick a period of time between one and thirty years. You decide the amount. The company sets the premium and you pay during the agreed term. If you die during the term, your beneficiaries (the people you named in the policy) take the amount you set. If the contract comes to an end and you are still alive, the term ends and no benefit is payable. At this point you read the small print to find out whether you can renew or convert the policy into a permanent policy. Remember that, if you do have the right to renew, you are older. People who are older pay a higher premium because they are closer to death. That means you should be careful when you take out your first term policy. Always negotiate the terms before you buy to protect the interests of your family and dependents.

The alternative is a permanent policy which lasts for as long as you pay the premiums. There are several different types but the two more important policies are:
” whole life insurance which gives you a lifetime protection by guaranteeing both the death benefit and the cash value payable on death for a fixed premium; and
” universal life insurance which makes a number of assumptions about the interest rates that may be payable during your life and projects the premium needed to pay the nominated sums on death. If these assumptions prove wrong, you will be asked to pay a higher premium.

The advantage of policies like these is that they have a cash or surrender value. Unlike a term life policy where you get nothing back, permanent policies have investment elements. Over time, these build up in value. Should you die, the amount payable includes the investment sums. Thus, at the very least, your policy was inflation proofed. But if you have an emergency, say you have an accident and there is a need for surgery, you can draw on the cash element.

The difference between term and permanent can be put simply. A term policy covers you against the possibility you might die during the term. A permanent policy covers you against a certain event. Everyone dies. So long as you’ve kept up the premiums or have a policy that guarantees payment on death, your family is protected.