Employee Life and Disability Insurance

Types of Permanent Life Insurance

The 3 basic types of permanent life insurance are whole life, universal life, and variable life.

Whole Life

Whole life, as the name suggests, lasts until death. Rates are guaranteed for the life of the policy offering stability with a guaranteed benefit as long as the premiums are paid. The insurance company invests the surplus premium funds and is responsible for managing the tax-advantaged investment. So, it’s important to choose an insurer with sound financial ratings.

The most common type of whole life insurance is straight life. Premium payments will never change in a straight life policy, so a dramatic change in your income could create problems with premium payments. Premiums can't be paid if the insured doesn’t have enough income.

There are other types of whole life insurance that do provide premiums that vary over the course of the insured's life. They include limited-pay life where payments are made for a specified or limited number of years, single-premium whole life which is fully paid up from the inception of the policy, and adjustable life which is a flexible-premium, adjustable-death-benefit type of cash value insurance. These forms of whole life insurance are less common than straight life, however.

Universal Life

Universal life insurance is a flexible-premium, interest sensitive, adjustable death benefit type of cash value life insurance. Universal life has many parts that need to be understood.

Following the first payment, the insured can:

• Select whatever premium they wish to pay, within limits, and later adjust or change the premium.
• Skip premium payments as long as the cash value is sufficient to cover policy charges.
• Change the death benefit amount, although they may have to provide medical proof that their health has not deteriorated, and
• Make premium payments according to the policy's requested minimum and maximum payments.

Insurance companies can and do increase policy fees. And it's important to keep in mind that the insurance company manages part of the investment, so choose the insurer wisely.

Variable Life

Variable life offers a death benefit with a side fund that operates like an investment account. In a variable life policy, cash values and death benefits rise and fall with portfolio performance. This type of life insurance is a security product which uses a separate account (the investment feature) for accruing cash value instead of the general account of the insurer. The premium is fixed, but the face amount of the policy varies up and down, subject to a minimum guarantee, which is the original amount of insurance. There is no guaranteed cash value, but the insured maintains control of their funds – they can invest the money as they see fit within the choices provided