Different Types and Features of Life insurance

As we defined life insurance earlier, now time to explore different life insurance policy and its features as well.As a whole we have three types of life insurance to consider:

1. Term Life Insurance
2. Permanent life Insurance
3. Endowment Life Insurance.

This Permanent Life Insurance is further subcategorized into three distinctive types

1. Universal Life Insurance.
2. Variable Universal Life Insurance.
3. Whole Life Insurance.

1.  Term Life Insurance

It is the most general form of life insurance. Here you pay a constant premium over the period of time and in return you get a financial protection for your life. If insured person dies within the period only then he or she will get the death benefit otherwise or if the insured person doesn’t die the insured person will not get anything from the insurer. The periodic payment as premium is low compared to other type of life insurance. So if you have little income and also someone dependable on you then you can take term life insurance.

• Premium is fixed and low compare to other life insurance.
• Death benefits only applicable if and only the death occur.
• After the term period the insured person gets nothing.
  

This Term Life Insurance may be Renewable or decreasing as well. In case of renewable term life insurance the premium is initially low and at later period it increases over time. Decreasing Term Life Insurance, in this case the value of life decreases over the years and gradually it will be zero. For example, in 10 years Life Insurance for the first year the value is 10, 00,000 dollar for the 2nd year 9, 00,000 for the 3rd year 8, 00,000 and gradually it is zero. Note in this type of insurance the premium is constant over time.

2. Permanent life Insurance

Permanent Life Insurance continues forever through the insured person’s life. Permanent life insurance remains active until the policy matures, unless the owner fails to pay the premium when due. The policy cannot be cancelled by the insurer for any reason except fraudulent application, and any such cancellation must occur within a period of time (usually two years) defined by law. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.
Different types of permanent Life Insurance are follows

1. Universal Life Insurance.
2. 
   Variable Universal Life Insurance.
3. Whole Life Insurance.

Universal Life Insurance

Universal Life Insurance is more flexible life insurance. “Flexible” it is in regards of premium, maturity and death benefits. In this policy the policy holder provides a flexible premium that includes a fee for death insurance plus an extra amount as a savings for future investment. This extra amount will earn an interest and will be repaid to the policy holder at maturity.

• The saving and interest earning from UL (Universal Life) Insurance is Tax exempted.
• The policy holder can change the value of death benefits.
• The Policy holder can change the amount of premium.
• The policy holder can take loan against the insured amount.
• If the loan becomes due then the savings portion must be used to recover the loan.

Variable Universal Life Insurance

The Variable Life insurance is like Universal Life Insurance the only difference is that the policy holder can choose exactly where he or she will invest his or her savings amount to earn. In this case he or she can invest that savings portion in any risky financial assets such stocks and debenture. Note if he or she gains from the investment then he or she lucky enough to take that all money but if he/she loses the money then h/s has to include or maintain higher premium to even continue the policy. So if you are a financial expert or you have someone for you that understands the pros and corns of investment then you should be profitable with this type of policy.

Whole Life Insurance

Whole Life Insurance ¬ (WL) continues end ever till the death of the insured person’s with a label premium. Part of its premium is for death benefit and part of its premium is for savings purpose. The savings will earn a constant interest over the time period. The policy holder can access that money through policy loan and it is tax exempted. If the insured person fails to pay the lone then the savings amount will be used to recover that due loan. The loan is accessible before the death of the policy holder.
• It is guaranteed death benefit insurance as it continues until death of the insured person.
• The premium is higher then term insurance.
• Policy holder can take loan and it is tax free.

The interest earnings are tax free.

The premium is fixed and can not be changed over times.

Usually, this type of insurance is better if you have a constant income over times and also you want to be a risk free person.

3.  Endowment Life Insurance:

It’s little bit similar to whole life insurance but the only difference is that the premium is paid off within a specific period say for example 5years, 10years, or may be 15years. In WL the premium continues forever or until death but in Endowment plan the premium is paid off in shorter period of time and hence the premium is also larger. In this type of plan you will get insurance coverage for your life and you will also get a lump sum amount at the end of the policy term. This endowment plan is preferred when you have a certain income and savings as well. Consider the following features

• You have to pay a periodic premium; it will include a fee for your term life insurance and a savings portion which will earn a small and safe interest.
• You will get the savings portion at the end of policy term period along with interest. This interest rate is usually less than the market rate. If inflation rate is higher over the period you may not like this plan because it does not considers inflation and it is risk free so the interest.
• It is a tax deductable income.
• Its main advantage is that you don’t need to consider any medical report for granting the insurance before you are 51 and less than 101,000 dollar insured amount.
Note: The feature will vary from company to company but the basic notion will remain same.