Comparing Different Types of Life Insurance

The reasons an individual might get a life insurance plan vary greatly, so there are multiple types of life insurance plans that meet the different needs of these groups. For instance, there are "term" plans, which last only over a certain length of time, and there are "whole life" insurance plans, which last one's entire lifetime.

Term Life Insurance

Term life insurance is purchased for a particular length of time, usually from one to thirty years. This type of plan is typically for individuals who want to be able to allow their financial contribution to the family to be continued in case of an accident resulting in death. The limited time the life insurance plan is good for means that there will be benefits during the critical years while children are growing up.

Purchasing term life insurance allows for a more reasonable premium than "whole life" plans because there is less of a chance of having to use the benefits. Term life insurance is slightly less popular than whole life plans. There are two types of term life insurance, level term and decreasing term.

Level Term Life Insurance

Level term life insurance means that the the benefit stays the same the throughout the entire term.

Decreasing Term Life Insurance

Decreasing term life insurance means that the amount of the benefit is reduced every year during the course of the term. Individuals who would like more security while their children are young, but will have less worry as they get older, will be more likely to get decreasing vs. level term life insurance.

Whole Life, or Permanent Life Insurance

A whole life life insurance is a policy that lasts throughout the duration on one's life. That means that no mater when death my occur, the death benefits are paid out. This kind of policy is good for individuals who are concerned with leaving an inheritance to their family, regardless of their age.

There are three major types of whole life insurance, including universal life insurance, variable universal life insurance and traditional whole life insurance.

Universal Life Insurance

A universal life insurance plan is based on cash value. In a universal life insurance plan, an individual can pay the insurance company over and above their premium, and any value that exists in the balance accrues interest. Each month, the account is debited the amount required premium. As long as there is cash in the universal life insurance account, death benefits will be paid. If the account cash value drops to nothing, the life insurance will lapse, and benefits will not be paid.

Variable Universal Life Insurance

A variable universal life insurance plan is similar to the universal life insurance plan except that the investment made in the plan can be applied towards different accounts, much like a mutual fund. It carries higher risk than a universal life insurance plan because if the investments perform poorly, the cash value of the plan can drop. However, it it performs well, it can develop more quickly than an universal life insurance plan.

Traditional Whole Life Insurance

In a traditional whole life insurance plan, the insured pays a particular premium that remains consistent throughout their lives. The life insurance company, instead of charging a premium based on risk, which would mean that premium rates would climb much higher as one got older, instead evens out the payments over a lifetime. So one would end up paying more initially than necessary, but would pay less as they got older.