Types of life insurance policies
Various types of life insurance policies are available to suit different needs. Three main types are whole life insurance, term life insurance, and universal life insurance.
Whole life insurance
Whole life insurance is a type of permanent policy that provides coverage for your entire life with premium payments that typically remain level. It also typically builds “cash value” that accumulates over time.[1]
Your premiums will stay the same for as long as you have the policy, and as your cash value accumulates, you can borrow against it to cover unexpected expenses. However, whole life is generally the most expensive type of life insurance. And you may have to pay fees or penalties to borrow against your cash value.
Learn More: How Much Life Insurance Do I Need?
Term life insurance
Term life insurance is a temporary form of coverage that provides death- or illness-related expenses for a predetermined period of time, such as 10 or 20 years. It has no cash value and expires at the end of the term.
Term life insurance offers flexibility in coverage amounts and lengths of policy, and it’s generally more affordable than other types of life insurance, such as whole life. However, term life insurance doesn’t provide any cash value in the event of outliving the policy’s lifespan, and a lapse in payments can result in a cancellation of the policy.
See Also: Types of Term Life Insurance
Universal life insurance
Universal life insurance is a type of permanent life insurance. It has a cash value that accumulates over time, which can be used to pay premiums at a later date. Premiums can be lower than whole life insurance because the cash value of universal life insurance earns interest according to the market rate. So, if the market fluctuates, your premiums can fluctuate. Thus, universal policies offer more flexibility than either whole or term life policies. However, there’s no guarantee of returns, since the interest rate is based on the market rate, and it’s possible your policy will get more expensive as you age.