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The Two Main Types Of Life Insurance - Yes There Are Only Two

The Two Main Types Of Life Insurance - Yes There Are Only Two
The Two Main Types Of Life Insurance - Yes There Are Only Two


Life insurance comes in many forms: term, permanent, whole life, variable, universal, indexed, equity indexed... and the list goes on. But the fact of the matter is there are really only two types of insurance - term and permanent. All of the other names are variations of products that fall under those two categories.

Term Life Insurance

Simply put it is exactly what it is called. It is temporary coverage that only lasts for the time specified in the policy contract, usually five, ten, twenty or thirty years. If the insurers dies before that period has expired the death benefit will be paid to the beneficiary. However, if the policy expires before the insurer's death, nothing will be paid out because the policy will be be no longer valid. These policies can be renewed or converted but it must be done before the contract expires.

Term policies are very inexpensive during the coverage period, but once that policy has expired, the premiums can more than quadruple in amount. Yes, I am saying that the low monthly premium is temporary also. Most people are attracted to the low premium of a term policy which is why they are so popular. In addition, term policies do not come with a cash value account and therefore they do not provide the policy owner the benefit of being able to draw on any accumulated funds in the event that the funds are needed.

Permanent Life Insurance

Permanent life insurance is often called many of the names I mentioned above - whole life, variable, universal, indexed, or equity indexed. The difference between those various names is how the policy is structured and how it earns interest in the cash account. But they are all classified by an insurance company as a permanent life insurance contract.

With a permanent life insurance contract, your premium is just that - PERMANENT. It does not go up after a certain number of years have passed. It stays the same. As a result these policies tend to have a longer life span than a temporary policy.

These policies also include cash value accounts that the policy owner is able to draw on in the event they need to. The cash available is a combination of a portion of the monthly premium payment received and the interest earned. The interest earned varies based on the terms of the contract. This cash value account is the biggest benefit of a permanent life insurance policy such that it acts as an emergency savings account. A policy owner can withdraw money at any time for any reason and it is 100% tax free.

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