Types of Life Insurance

Term:  This is the simplest and least expensive form of life insurance.  It is considered pure insurance because there is no investment component.  It covers you only for a certain term such as 10 years, 20 years, etc.  If you die before that time, your beneficiary receives the value of the policy.  Premium rates usually stay the same for the length of the policy.

Whole Life: This policy can provide a specific amount of coverage for your entire life, not just a certain number of years.  The premiums remain level, but they are usually quite a bit higher than term.  A portion of the premium is invested by the insurance company and starts to build a tax-deferred cash value account.  The rate of return is often low.  Companies give you the option to receive dividends from your policy or to apply them to reduce premium payments.  This cash value is available for withdrawals during your lifetime.

Variable Life:  This type of life insurance can also provide life-long coverage.  Premiums remain the same over the life of the policy and it also accumulates tax-deferred cash value.  The main difference between variable life and whole life is that variable has more flexibility on the investment side.  Companies typically offer mutual fund investments which may grow faster than the low fixed rates of whole life.  The trade-off is that there is no guarantee to the amount of cash value over your lifetime.

Universal Life:  Universal life can also provide permanent insurance coverage, and is more flexible than whole life and variable life.  Like variable life, it allows you to accumulate cash value on a tax-deferred basis which can be withdrawn.  One difference between the two is that universal life does not allow you to participate in the stock market.  Instead, it provides market interest rates on your cash value.  Another difference is that premiums are not fixed.  Beyond a minimum premium, you can decide how much to invest in the policy.

Universal Variable Life:  This is the most flexible type of insurance.  Like the other permanent insurance, it can provide coverage for your entire life, it accumulates cash value on a tax-deferred basis, and you are able to withdraw the cash value.  It provides the premium flexibility of universal life and the able to investment in the stock market like variable life.

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