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Life Insurance

Life insurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the policy owner's death. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals.

Insured events that may be covered include:

  • death
  • accidental death
  • illness

Life based contracts tend to fall into two major categories:

  • Protection policies - designed to provide a benefit in the event of a specified event, typically a lump sum payment.
  • Investment policies - the main objective is to facilitate the growth of capital by regular or single premiums.

 

Types of Life Insurance

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Life insurance may be divided into two basic classes – temporary and permanent or following subclasses - term, universal, whole life, variable, variable universal and endowment life insurance.

Related Life Insurance Products

Riders are modifications to the insurance policy added at the same time the policy is issued. These riders change the basic policy to provide some feature desired by the policy owner. A common rider is accidental death, which used to be commonly referred to as "double indemnity", which pays twice the amount of the policy face value if death results from accidental causes, as if both a full coverage policy and an accidental death policy were in effect on the insured. Another common rider is premium waiver, which waives future premiums if the insured becomes disabled.

Joint life insurance is either a term or permanent policy insuring two or more lives with the proceeds payable on the first death.

Survivorship life or second-to-die life is a whole life policy insuring two lives with the proceeds payable on the second (later) death.

Single premium whole life is a policy with only one premium which is payable at the time the policy is issued.

Modified whole life is a whole life policy that charges smaller premiums for a specified period of time after which the premiums increase for the remainder of the policy.

Group life insurance is term insurance covering a group of people, usually employees of a company or members of a union or association. Individual proof of insurability is not normally a consideration in the underwriting. Rather, the underwriter considers the size and turnover of the group, and the financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often has a provision that a member exiting the group has the right to buy individual insurance coverage.

Compare Types of Life Insurance

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Term

Whole Life

Universal Life

Variable Life

Variable Universal Life

Premium

Premiums increase at each renewal

Level

Flexible

Level

Flexible

Coverage

Usually renewable until at least age 70; for some policies, up to age 95

For life

For life

For life

For life

Death benefit

Guaranteed

Guaranteed

May be guaranteed, depending on policy

Guaranteed

May be guaranteed, depending on policy

May increase with dividends*

Can be increased or decreased

Varies relative to cash value investment returns

Can be increased or decreased; varies relative to cash value investment returns

Cash value

None

Guaranteed

Guaranteed minimum interest rate

Not guaranteed

Not guaranteed

May increase with dividends*

Varies based on interest rates

Fluctuates with subaccount performance

Fluctuates with subaccount performance

Policy loans allowed?

Not applicable

Yes

Yes

Yes

Yes

May be able to borrow up to 100% of total cash surrender value less annual loan interest rate

Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy)

Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy)

Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy)

Cash withdrawals allowed?

Not applicable

No

Yes

No

Yes

Cash value account growth

No cash value account

Insurer determines guaranteed cash value and declares dividends based on performance of its general investment portfolio*

Insurer determines cash value interest crediting rates based on current interest rate returns to the company

Cash value account growth depends upon the investment performance of the subaccounts you choose

Cash value account growth depends upon the investment performance of the subaccounts you choose

 

*Dividends are not guaranteed.

Note: Any guarantees associated with payment of death benefits, income options, or rates of return are subject to the claims-paying ability of the insurer. Policy loans and withdrawals will reduce the policy's cash value and death benefit and may cause the policy to lapse.  Withdrawals may be subject to surrender charges and income tax, and a 10% penalty may apply to withdrawals from a modified endowment contract if made under age 59½.

Note: Variable life and variable universal life insurance policies are offered by prospectus, which you can obtain from your financial professional or the insurance company. The prospectus contains detailed information about investment objectives, risks, charges, and expenses. You should read the prospectus and consider this information carefully before purchasing a variable life or variable universal life insurance policy.

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