There are two basic forms of life insurance; term life and whole life insurance. Term life policies are active for a defined duration of 1 to 30 years. They pay off a specific amount if the insured dies within the duration that is defined (the Term). Whole life insurance is active for the insured’s entire life-span, unless the policy is closed or canceled. Term life is usually used to make sure that a family can meet all of its obligations and goals. A whole life policy offers protection for the family’s financial status.
There are six sub-classes of whole life insurance policies. Each of these categories define a different aspect of the policy and can have an effect on the death benefits, premium costs and other aspects of the policy.
A Non-Participating policy is a fixed value policy. It does not matter if values change during the policies lifetime. The ultimate cash value does not change. The insurance company takes on the cost of low premiums or experiences a profit if excess premium payments are made.
Participating is the counterpart to non-participating, with the exception that the policyholder is included. When rates and risk factors change, the insurance company shares the responsibility for cost or benefits with the policyholder. Many people prefer this type of whole life insurance.
This policy type sometimes has variable premiums. The premium may be more or expensive from year to year. The policy value is not changed as a result of varying premium costs.
A combination of term and whole life insurances, Economic premiums are used to get extensions of policies without any extra costs. Conversely, if the premiums are not enough in a given year, the benefits will decrease in accordance on the policy.
Limited pay insurance policies set the required number of payments or investments of cash to be made. Though in effect for the entire life of the policyholder, a 20 year limited pay plan would be paid in full after 20 years.
As its name implies, a single premium insurance policy is exactly that; a single lump sum payment is made for the policy. The policy is active for the rest of the insured person’s life. Overall this type of policy may be the least expensive, though it does require a substantial initial payment at the beginning.