The Basics of Life Insurance

Life insurance provides coverage for a “term” or “whole” life. It can include a tax-deferred investment account and include a number of riders and payout options.

There are many different types of life insurance, some which pay lump-sum amounts and others that provide “cash value” via an investment fund. The many different life insurance types and riders that can be attached to them make life insurance a rather complex type of coverage. Understanding the life insurance basics can mean the difference between a “junk policy” that never pays and providing for your family in the worse case scenarios.

Life Insurance Facts

Get facts and statistics on life insurance. This page will help give you an overview of everything you need to know about life insurance in bullet-point form.

Convertible Life Insurance

A convertible life insurance policy is a term policy that you can convert into a whole life policy. Typically you’ll pay a higher premium, but as a plus it can help mean paying lower premiums down the road for permanent life insurance, as you won’t have to take the evidence of insurability test permanent life insurance is based on.

Life Annuities

Life annuities are a type of life insurance product that offers an alternative to traditional whole or term life insurance. The value of life annuities is argued, but typically variable annuities are considered to be a risky investment (to the extent that the SEC’s warning page on variable annuities is the top search result for life annuity).

Life Insurance Riders

Life insurance riders customize a life insurance policy allowing for the insured to create a customized policy that works for them. If done smartly a rider can add more value to the policy, if done without thought or reading the fine print they can actually decrease the value of the contract and lead to higher premiums.

Endowment Life Insurance

Endowment life insurance is a hybrid of whole and term life. Typically it last for 10 to 20 years. It builds cash value quickly, and thus can have high premiums, but allows shoppers to have term life insurance (guaranteeing payout on death) and a guaranteed payout upon maturity of the contract through the investment portion as well.

Types of Life Insurance

Types of life insurance include the two basic types “term” life and “whole” life. There are also a number of different sub-types, most applying to “whole” life policies. These are typically broken down into universal, variable, and indexed whole life policies. The main differences being how benefits are paid out and how investments are managed.

Variable Universal Life Insurance

Variable Universal Life insurance is a life insurance type that combines the flexibility of universal life insurance, allowing the policy holder to adjust payouts and premiums, with the variable aspect of of variable life insurance, allowing the policy holder to vary what accounts cash value is built in.

Cash Value in Life Insurance

In life insurance cash value is tax-deferred money built up an an investment account. This is different than “death benefits” which are typically a set amount paid out upon the death of the insured. There are a number of different ways to withdraw cash value, but each has it’s own implications.

Indexed Universal Life Insurance

Indexed Universal Life Insurance is a tax-deferred whole life policy that allows the policy holder to invest in indexes like the S&P or the Nasdaq for cash value and also pays death benefits. Indexed life insurance usually provides a minimum payout and death benefits, but it is less flexible and offers less risk/reward than variable life . . . read more