Life insurance is generally categorized as either Term or Permanent Insurance. The three key types of Permanent Insurance are Whole Life, Universal Life and Variable Universal Life Insurance. A suitable choice would depend on the needs and personal circumstances of an individual.

Term Insurance is the simplest type of life insurance and requires the smallest initial cash outlay. It is usually preferred to provide protection for a specific period of time. It can be a yearly renewable term or can extend to a longer period of time such as 30 years. Renewal of this type of policy at the end of the term is usually allowed even without providing evidence of insurability. However, the premiums typically increase at each time of renewal.

A Term Insurance provides a death benefit to the beneficiary if the insured dies while the policy is in force. There are no benefits paid or any cash value accumulated at the expiration of the policy. It is generally purchased by those with a temporary need for life insurance as well as those with limited budgets.

Permanent Life Insurance is designed to provide life insurance protection for a person’s lifetime. It can accumulate a cash value which is an amount of money that can be withdrawn or borrowed to be used as desired by the insured. The various types of Permanent Life Insurance differ in the flexibility of premium payments, how the cash value is invested and the death benefit guarantee.

Whole Life insurance does not expire as long as the premiums are paid and there is no need for renewal. The face amount of insurance and the premium are fixed. With premiums maintained at a level amount, the insurance company guarantees a death benefit and a cash value that increases every year. Loans or withdrawals done against the policy reduce the death benefit. This type of insurance often pays policy dividends subject to the terms and conditions of the policy but these dividends are not guaranteed. Guarantees are based on the claims paying ability of the issuing insurance company.

Universal Life Insurance is more flexible than Whole Life. The policy owner can change the timing and amount of the premium payments as long as the premiums paid are sufficient to cover the policy. Payments are applied to the cash value which earns an interest rate declared by the insurance policy.

Variable Universal Life Insurance is similar to Universal Life Insurance but offers more flexibility. Whereas, the Universal Life Insurance policies offers cash value that earns an interest, Variable Universal Life Insurance allows the policy holder to invest the cash value of the policy in a variety of investment options. Payments are generally applied to the cash value which fluctuates based on the performance of the investment options selected. The death benefit of Variable Universal Life contracts offers a choice between the death benefit and the death benefit selected plus the accumulated cash value.

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