Although most people believe there are just two types of life insurance--term life insurance and whole life insurance--there are a number of others. Many of these different types of life insurance have features that are similar to either whole life or term life insurance, but they have enough specific features to differentiate between them from the other forms of life insurance.
Term Life Insurance
Term life insurance is life insurance in its most basic form. The insured party purchases life insurance for a specified length of time and his heirs will collect on the policy if the insured person dies during that time frame. If the insured party outlives the policy, he would have to purchase a new life insurance policy for continued coverage.
Whole Life Insurance
Whole life insurance is essentially what the name implies--insurance for a person's entire life. It costs more than term life insurance, but a whole life policy will build a cash value after premiums have been paid into it. A person may borrow against the cash value of the policy or surrender the policy for its cash value if he so chooses.
Universal Life Insurance
With universal life insurance, you are given a premium amount and then given the decision how much additional money you want to pay. The insurance company will invest the additional money in a safe manner, such as bonds, in a separate account, which you can use to pay premiums or allow to grow.
Variable Life Insurance
A variable life insurance policy is similar to a universal life policy, with the investment options being the primary difference. It allows a wider variety of investment options than a universal policy. Just as with a universal policy, the additional money paid will be placed in an account and can be used to pay future premiums or be allowed to grow.
Variable Universal Life Insurance
Variable universal life insurance policies may be the most complicated of the different policies, but they do have components of both variable life insurance and universal life insurance policies. With a variable universal policy, you may adjust the amount of the premium payment and benefit amount. Policy holders are given the option of choosing the investment method, and these policies do not have a guaranteed cash value. These types of policies are often best left to experienced investors.
Return of Premium Life Insurance
A return of premium life insurance policy will return the amount of money you paid for your premiums if you outlive the length of your policy. The drawbacks are that you can expect to pay close to 50 percent more for a return of premium policy than you would for the same amount of term life insurance. You also have to keep the policy in effect for a specified number of years, typically 10 to 30, before you are entitled to receive any of your premiums back. If you do not keep the policy for the full term, the amount you receive back will be much less than you've paid in.
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