Life Insurance Policies

What Are the Basic Types of Life Insurance Policies?

There are quite a few different types of life insurance policies available out there. Before taking one out, it is necessary that individuals have a working knowledge of the basic types of insurance policies so as to be able to get the one that suits them best. Below is a brief discussion of the two common types of policies and some of their benefits.

Term Life Insurance

In its simplest form, term life insurance is a policy that is catered to meet the short term requirements of individuals. If in the case that the policy holder is involved in a grave accident or meets an untimely death, a claim can be easily made through term life insurance. Another benefit of this policy is that it will also compensate the bereaved in cases wherein there is a death in the immediate family (for most term life insurance policies, at least).

In most cases term life insurance is a program that is both convertible and renewable. It can go as brief as a year, to as long a time as one hundred years. In the case of the former, the cost of the coverage will increase annually up until the policy expires. In most deals the policy will expire once the policy holder turns 75 years old. On the other hand, policies that span for a hundred years are will most likely become part of a whole life insurance. Since its benefits are more for the long run, people often say that whole life insurance is actually a cheaper deal. This is the second type of the two basic life insurance policies.

Whole Life Insurance

Whole life insurance or permanent life insurance policies are taken out to cover an individual’s entire life. The value of the insurance is directly proportional to the time in which the policy holder participates in the program. This means that the longer an individual takes part in the policy, the higher his eventual payout will be.

Whole life insurance can be further subdivided into to basic classes—par and non-par. The main difference between the two is the dividends involved in the policies. For par whole life insurance the amount of dividends increases over time. The total dividends are a combination of a partial return of the initial premium plus the growth on the investment. However, in non-par whole life insurance, there are no dividends. The eventual cash values in these policies are guaranteed and are not dependent on other factors such as investment growth. Some people believe that when choosing between the two life insurance policies, whole life insurance is better for those who are in it for the long run. GP