Question

Briefly discuss the types of life insurance policies offered in the US.

Answer 1

Term life insurance:
Is the most basic, and often least expensive, form of life insurance for people under age 50. A term policy is written for a specific period of time, typically 1 to 10 years, and may be renewable at the end of each term. Also, the premiums will likely increase at the end of each term and can become prohibitively expensive for older individuals.

Whole life insurance:
Combines permanent protection with a savings component. As long as you continue to pay the premiums, you are able to lock in coverage at a level premium rate. Part of that premium accrues as cash value. As the policy gains value, you may be able to borrow a portion of your policy's cash value tax free, although loans accrue interest and reduce the policy's death benefit and cash value, and may trigger a taxable event if the policy lapses.

Universal life insurance:
Is similar to whole life with the added benefit of potentially higher earnings on the savings component. Universal life policies are also more flexible in regard to premiums and face value. Premiums may be increased, decreased, or deferred, and cash values can be withdrawn. You may also have the option to change the amount you are insured for, known as the face amount. Universal life policies typically offer a guaranteed* return on cash value. Premiums may be increased, decreased, or deferred, and cash values can be withdrawn.¹

Variable life insurance:
Generally offers fixed premiums and the ability to invest your cash value in a choice of stock, bond, or money market-based investment options offered by your insurer. Cash values and death benefits can rise and fall based on the performance of your investment choices.