Different Types of Life Insurance Explained

by Kerry Zias
Different types of life insurance provide different benefits and features.

Life insurance is a topic that most young people don't think about, because it focuses on death. The main purpose of a life insurance policy is to pay money to your loved ones if you die. However, different types of life insurance offer different benefits. Some provide you other benefits, which can help you and your family while you are living your life.

Term Life Insurance

Term life insurance is basic and simple. Its only benefit is a cash payment to your loved ones in the event your death. This is also the cheapest kind of life insurance to buy. At a young age, you can secure a large death benefit payment amount for a relatively premium payments. The name term means a certain length of time, 10 years for example, as the insurance policy expires after that length of time.

Whole Life Insurance

The whole refers to your whole life, as this type of policy is a permanent type of life insurance. It has no set expiration like term policies. A whole life policy is a contract, which sets out your premium payments and death benefits for the rest of your life. The younger you are when you buy this type of policy, the cheaper your premiums will be. Whole life also offers what's called cash value. The insurance company invests some of your premiums and pays you periodic interest or dividends on those investments.

Universal and Variable

A universal policy is a different kind of permanent life insurance. This policy sets out the minimum amount of premium you must pay to keep the policy effective, but allows you to pay more, which the insurance company invests. It is more flexible than whole life insurance, because you can vary your monthly payment to suit your needs and situation. Universal life also often allows you to take loans against your policy's cash value. Variable life insurance is similar, but allows you more choices of how the insurance company invests your premium payments.

Other Considerations

While you are young, it is very tempting to buy term life insurance, because it is so cheap. However, remember it is not permanent and gives you no cash value. A life insurance policy's cash value can help you and your family while you are still alive. It can help you with money when you have children or when you retire down the road. When shopping for life insurance, it is important to understand fully how cash value works for the particular policy you are considering. Every type of policy, even from the same company, has its own terms and conditions.

About the Author

Kerry Zias has been a strategic business consultant and college instructor of business administration courses since 1990. He has taught courses and performed professional consulting work in the areas of marketing, management, business start-ups, entrepreneurship, real estate, sales psychology and performance, business communications, business law and political/governmental relations. Zias holds a Master of Business Administration in marketing from National University.

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