What Types of Life Insurance Exist?

What Types of Life Insurance Exist?

There are more than a few types of life insurance, and more are introduced as time passes.

There is group life, term life, whole life, universal life, variations of these, as well as situations that use these products in contexts that warrant their own category such as bank owned life insurance (BOLI), captive insurance companies, and others.

Term life insurance is the most common type of life insurance, and it serves as pure insurance, with no cash value, and a limited time in which it has level premiums or will pay the guaranteed death benefit.

Term is also the most affordable. Some universal life contracts function and are priced like term, and there are universal life policies that are guaranteed to pay a level death benefit up to age 121 if the level premiums are paid.

The latter is what most people think a whole life policy is, which is close, but with the exception that whole life policies have cash value, and their death benefits are likely ti increase as the cash value buys what’s called paid-up-additions. Universal life was created as a hybrid between whole life and term.

Whole life has more guarantees than universal life, but universal life has more flexibility with premium structure and death benefit. There is also variable life and variable universal life, as well as indexed universal life.

Variable life and variable universal life can have market exposure through mutual fund investment options (which are technically called separate accounts, and only mirror mutual funds), which gives the policy the potential to grow or deplete depending on the market, in its cash value and death benefit.

Indexed life policies can be sold by agents who are not registered to sell securities, because they offer some participation in market derivatives but that exposure is primarily controlled by the insurance company, and the contracts technically do not experience the market downside, although due to the nature of universal life policies, a bad market can cause the policy to lapse, and potentially expose the policy owner to a large tax bill if many policy loans were taken out prior to that.

The same goes for other lapsing cash value policies. Bank owned life insurance, corporate owned life insurance, and captive-owned life insurance contracts are sub-genres of the industry which will technically use modified versions of the types of insurance already listed.

How Do I Know that Lie Insurance Companies are Reliable?
Is Life Insurance a Good Investment?