Within this category of life insurance, there are three types of contracts: “Level Term” (premiums and death benefit are the same throughout the contract); “Annual Renewable Term” (same “death benefit” during the contract, but the renewal of the contract every year with premium increases); “Decreasing Term” (the “death benefit” decreases each year and the premiums remain the same).
All other types of life insurance are covered by Permanent Life Insurance. As the name suggests, the policy is valid from the day you buy it until the day you die. There are several types of Term Life Insurance.
The “Whole Life” policy is the most classic and protects your entire life. The premiums paid are fixed. It has a “cash value” savings component (a portion of the premiums are paid at a minimum rate guaranteed by the company), but the policyholder has no control over how the money is invested. Interest earnings are not taxable for the duration of the contract. The “pay out” (amount paid at the end of the contract) is determined at the outset. This contract guarantees that a fixed amount of money will be paid to the family upon the death of the insured.
Like the “Whole Life” contract, the “Universal Life” contract protects a lifetime and gains value over time thanks to its savings component (“cash value”). But conversely, it is flexible in terms of protection, the premiums and the “payout”, or rather “variable” given the fact that you can vary the premiums.
The “Variable Life” contract gives the policyholder control over the way his savings are invested (stocks, bonds, mutual funds, etc.). The investment rate of return not only affects the cash surrender value of the policy but also increases or decreases the amount of the final death benefit. With this policy, the premiums are fixed.
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