Life Insurance Policy Types - Which One is the Best For Your Financial Needs?

Knowing your options will help you decide on the best possible deal you can ever get. The most important thing to do is to learn more about life insurance policy types. Basically, life insurance is divided into two categories, the temporary (term) and permanent.

Also called term assurance or pure insurance, term life insurance provides for life insurance coverage at a fixed term of years for a fixed premium. The policy does not accumulate cash value but it is one of the most affordable policies available today. It is called pure insurance because the premium only buys protection only in the event of death. For a term insurance, three key factors set in: the face amount (the death benefit itself or the protection), the premium (or the cost that the policyholder will pay), and the length of coverage (the duration or the term).

Permanent life insurance, on the other hand, will remain active until the policy matures or if the policyholder fails to pay the premium in due time. This type of insurance prevents the policyholder to cancel the policy for any reason (except legal reasons). One of the main differences between a temporary and a permanent life insurance is that the latter builds a cash value that reduces the risk to the insurance company. This, however, can be relatively expensive to a 70-year-old policyholder (for a face value of one million dollars). The good thing, though, is that he or she can access the money in the cash value by surrendering the policy, withdrawing the money, or borrowing the cash value.

But with the changing times and demands from policyholders, some subcategories of life insurance policy types were made (most of them are permanent life insurance). These include whole life coverage, universal life coverage, variable and variable universal, and endowment life insurance.