What Kinds of Life Insurance Are There, and What Do They Cover?

VARIOUS TYPES OF LIFE INSURANCE

There are two primary categories of life insurance: term and permanent.  However, there are several different types within each category. Listed below are some of the most common types.

TERM INSURANCE - Life insurance under which the death benefit is payable only if the insured dies during a specified period.  Listed below are various types of term insurance.

LEVEL TERM - a fixed amount of coverage with premiums that are fixed over a certain period of time, usually in 10-year incerements.

INCREASING/DECREASING TERM - amount of coverage increases or decreases throughtout the term, premiums typically remain level

RENEWABLE TERM - includes a renewal provision that gives the policyowner the right to renew the insurance coverage at the end of the specified term without submitting evidence of insurability.

CONVERTIBLE TERM - gives the policyholder the right to convert the term policy to a permanent policy.

GROUP TERM - insurance purchased typically by an employer or professional association that it intended to cover several people, usually resulting in reduced premiums.

PERMANENT INSURANCE - Life insurance that provides coverage throughout the insured's lifetime and may include an element that builds cash value.

INDEXED UNIVERSAL LIFE - a form of permanent life insurance thast combines the premium and death benefit flexibility of universal life insurance under which the cash value's current crediting rate is tied to the performance of a financial index.  Most policies offer gtuarantees that if the index is negative, the crediting rate will not go below zero.

TRADITIONAL WHOLE LIFE - remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy.  Whole life insurance may also include an element for accumulating growth (called "cash value).

UNIVERSAL LIFE INSURANCE - characterized by its flexible premiums, flexible face amounts, and unbundled pricing factors.

VARIABLE LIFE INSURANCE - a form of whole life insurance under which the death benefit and the cash value of the policy fluctuate according to the investment performance of separate account investments options.  Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum.

LAST SURVIVOR UNIVERESAL LIFE INSURANCE (also know as "survivorship" or "second-to-die" life insurance) - permanent life insurance that covers two persons and provides for payment of the death benefit proceeds only when both insureds have died.  It is generally designed to pay estate taxes.

SINGLE-PREMIUM WHOLE LIFE INSURANCE - whole life insurance purchased with a single, lump-sum premium.

This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state, or local tax penalties.  Mr. Term does not provide tax, accounting or legal advice.  Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax adviser.