YOU ASK:

What are the life insurance types out there?

WE ANSWER:

With over 1,500 active insurance companies, it is difficult to account for every single life insurance product they sell. However, life insurance policies of different companies tend to have similar characteristics, which allows us to categorize them.

Life Insurance Types - Classification

The types of life insurance, which insurance companies offer, can be broadly classified into two major categories: term life insurance and permanent (cash value) life insurance.

Term life insurance is the most affordable life insurance type and best suits people who need short-term coverage. The exceptionally low premiums and the great flexibility that term life insurance offers, have made it attractive for young people in particular, who cannot afford the steep permanent life policy premiums, or need protection for a certain period of time. There are three major term life insurance types:
- Annual renewable term (ART) - a pay-as-you-go policy that you can renew every year until you reach a certain age, usually 70. Premiums usually increase slightly with every following year.
- Fixed-rate level term - a policy which allows you to pay level premiums for a certain period, ranging from 5 to 30 years.
- Decreasing term - the premium rates stay the same but the amount of the death benefit decreases with each year.
Permanent life insurance provides lifelong protection, along with offering a number of benefits that the insured can use during their lifetime. Most permanent life policies have an accumulating cash value that you can receive in cash, take out as a loan, reinvest or buy additional life insurance with, on a tax-deferred basis. If you choose a participating permanent life policy, you are entitled to dividends if the insurance company has had a good financial year.
- Whole life - the oldest and least flexible type of cash value insurance with guaranteed zero-risk protection, in which the policyholder pays fixed level premiums unaffected by external factors for the rest of their life.
- Universal life - a more flexible policy that allows you to vary premium payments by lowering and even suspending them when you need to, or paying extra amounts into the cash value. The premium amounts are contingent on external market factors.
- Variable life - a policy that allows you to use the cash value for investment of your choice.

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