Life Insurance Policy Types and Features Explained

Life insurance policies come in different types, each with its unique features and benefits. Term life insurance is one of the most popular types, offering coverage for a specific period, usually 10 to 30 years.

There are two main types of term life insurance: level term and decreasing term. Level term provides a fixed death benefit, while decreasing term reduces the coverage amount over time.

Whole life insurance, on the other hand, provides lifelong coverage as long as premiums are paid. It also accumulates a cash value over time, which can be borrowed against or used to pay premiums.

The cash value of whole life insurance grows over time, earning interest and dividends.

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Life insurance policies come in two main types: term and permanent. Term life insurance provides coverage for a specific period, typically between 10 and 30 years, and doesn't have a cash value component.

Term life insurance has three main subtypes: level, increasing, and decreasing. Level term life insurance has a death benefit that remains the same throughout the policy term, while increasing term life insurance increases the death benefit over time. Decreasing term life insurance, on the other hand, decreases the death benefit periodically.

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Permanent life insurance, on the other hand, provides coverage that lasts your entire life and includes a cash value component that grows over time. There are two main types of permanent insurance: whole and universal life. Whole life insurance has a premium that remains the same for life, a guaranteed death benefit, and a cash value that grows at a guaranteed rate. Universal life insurance, while potentially less expensive, can be more complex due to its variable premium, death benefit, and cash value growth rate.

Here are the main differences between term and permanent life insurance:

Term life insurance is a type of life insurance that provides coverage for a specified period of time. This period could be as short as one year or provide coverage for a specific number of years such as 5, 10, 20 years or to a specified age.

There are several types of term life insurance, including renewable term, convertible term, level term, decreasing term, and adjustable premium term. Renewable term policies give you the right to renew for another period when a term ends, regardless of your health. The premium is increased with each new term.

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Convertible term policies permit you to exchange the policy for a permanent plan within a certain period. This type of policy often provides the maximum protection with the smallest amount of cash outlay.

Level term policies have a face amount that remains the same for the entire period, while decreasing term policies have a face amount that reduces over the period. The premium stays the same each year with both types of policies.

Adjustable premium term policies allow insurers to offer insurance at lower "current" premiums based on less conservative assumptions, with the right to change these premiums in the future.

Here are some key features of term life insurance:

In addition to the main types of life insurance, there are several other coverages that can provide extra protection and benefits.

Some life insurance policies come with riders that can be added to increase coverage for specific needs, such as long-term care or chronic illness.

Critical illness coverage can be added to a life insurance policy to provide a lump sum payment if you're diagnosed with a serious illness.

Accidental death coverage can provide an additional payout if your death is caused by an accident.

Waiver of premium benefits can be added to a life insurance policy to waive premium payments if you become disabled or critically ill.

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Some life insurance policies offer riders that can increase coverage for specific situations, such as accidental death or critical illness.

Riders like these can provide an extra layer of financial protection for your loved ones.

A waiver of premium rider can also help you avoid paying premiums if you become disabled and are unable to work.

This rider can be a lifesaver if you're unable to earn an income due to illness or injury.

Term life insurance policies often have a conversion option that allows you to convert to a permanent policy without a medical exam.

This can be a great option if you're not sure whether you'll need permanent coverage in the future.

Some life insurance policies also offer a return of premium rider, which refunds a portion of your premiums at the end of the term.

This can be a good option if you're not sure how long you'll need coverage.

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Family and Joint Life Insurance options are available to provide coverage for multiple people under one contract. The Family Policy is a popular choice, offering insurance protection to your immediate family, including your spouse and children, often sold in units of protection such as $5,000 for the main wage earner and $1,000 for each child.

Joint Life and Survivor Insurance provides coverage for two or more persons, with the death benefit payable at the death of the last insured. This type of insurance is often more cost-effective than individual policies, with premiums significantly lower.

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Joint Life Insurance, on the other hand, provides coverage for two or more persons, but the death benefit is payable at the first death. This means premiums are higher compared to individual policies, since the probability of having to pay a death claim is higher.

Family Policies often come in packages, such as $5,000 for the main wage earner, $1,500 for the spouse, and $1,000 for each child.

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Whole life insurance is the most basic permanent policy, covering the insured for life as long as premiums are paid. The premium remains the same throughout the life of the insured, making it a predictable and stable option.

One of the benefits of whole life insurance is that the death benefit is guaranteed, meaning that the policyowner's beneficiaries will receive the full death benefit amount, regardless of the policy's cash value. The cash value also grows at a guaranteed rate, providing a tax-deferred savings component.

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Whole life insurance policies can be tailored to fit individual needs, with some variations permitting premiums to be paid for a shorter period, such as 10 years, 20 years, or until age 65. This flexibility can be beneficial for those who expect their financial situation to change in the future.

Here are some key features of whole life insurance:

Overall, whole life insurance is a solid choice for those seeking a stable and predictable life insurance policy.

To get started with life insurance, you want coverage that fits your needs and your budget. The best way to get it started is to decide how much you need, for how long, and what you can afford.

You can then examine what kinds of policies are available to meet your needs and pick the one that best suits you. This is where a life insurance agent can be a big help. They can review your insurance needs and provide information about the kinds of policies that are available.

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Some standard terms you'll see in a life insurance policy include the insurer, the policyholder, the insured, the death benefit, the beneficiaries, the policy length, the premium, and the cash value. Here's a breakdown of what each of these terms means:

Monthly Ordinary Debit insurance is a type of insurance where premiums are payable monthly and are often collected at your home. However, in most cases, home collections don't happen and you'll need to mail the premiums to the agent or company.

Smaller policies issued as debit insurance tend to have higher premiums per $1,000 of insurance compared to larger size regular insurance policies, due to certain expenses that remain the same regardless of policy size.

Higher lapse rates among debit policyholders can also increase costs, as these lapses are expensive for the company and are often passed on to all debit policyholders.

Debit insurance often comes with higher commissions and fees due to the inclusion of home collections, which can also be passed on to the policyholder.

In some cases, you may be able to purchase a larger amount of regular insurance at no extra cost, making it a cost-saving alternative to debit insurance.

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Juvenile insurance provides a minimum of protection and could provide coverage, which might not be available at a later date.

The amounts provided under such coverage are generally limited based on the age of the child, with certain limitations applying to minors under the age of 14.5 and 4.5.

For minors under 14.5, the limitations would be the greater of $50,000 or 50% of the amount of life insurance in force upon the life of the applicant.

In contrast, for minors under 4.5, the limitations would be the greater of $50,000 or 25% of the amount of life insurance in force upon the life of the applicant.

Juvenile insurance may be sold with a payor benefit rider, which provides for waiving future premiums on the child's policy in the event of the death of the person who pays the premium.

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To get started with life insurance, you need to decide how much you need, for how long, and what you can afford. This will help you choose the right policy.

First, consider how much insurance you need to cover your financial responsibilities, such as funeral expenses, outstanding debts, and ongoing living expenses. Think about your income, expenses, and debts to determine how much coverage you require.

Next, examine what kinds of policies are available to meet your needs. Life insurance policies can be permanent or term-based, and they come with different features, such as cash value and death benefit options.

A good starting point is to compare different policies and their costs. Look for policies that offer a death benefit that matches your insurance needs, and compare the premiums charged by different insurance companies.

It makes good sense to ask a life insurance agent to help you select a policy that best meets your needs and resources. They can review your insurance needs and provide information about the kinds of policies that are available.

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