There are different types of life insurance policies. Here are a few of the most common:
- Whole Life
- Universal Life (UL)
- Term Life
- Return of Premium Term (ROP)
Whole Life is the most traditional and considered to be permanent life insurance. It pays WHEN you die and builds cash value over the years as you pay premium. There is also a guaranteed interest rate that will add to the cash value of the policy. Most whole life policies will allow you to borrow against the cash value as well.
Universal Life (UL) is also considered to be permanent insurance but tends to offer a higher interest rate than whole life, based on the market.
Term Insurance is very popular now because it boasts higher face amounts for lower premium. Term insurance pays IF you die during the term; if you do not die during the term it pays nothing. There is no cash value with a term policy. This is considered to be temporary insurance used to cover a temporary need, such as income during working years or the final 20 years on a mortgage. Term Insurance policies are available in a variety of terms (ie. 10yr, 20yr or 30yr or term to 100 ). Only a small % of term policies actually pay a death benefit. But people still buy them because most term policies offer generous conversion privileges. This means an insured will have the option to convert some or all of the term insurance to permanent insurance (such as whole life) WITHOUT proving medical health again. This meets the needs of someone wanting to buy permanent insurance but unable to afford the higher premium for permanent insurance today. S/he can buy a term policy now and convert it to a permanent policy years later when s/he is making more money and better able to afford the premium of a permanent plan, without the worry of becoming uninsurable. Conversion privileges can vary so be sure to ask you agent what they are.
Return of Premium Term (ROP) is a good fit for someone wanting to cover a temporary need but not wanting to throw all that money away in premium. Quite simply, if you don’t die during the term you get all of your money back. Return of premium policies tend to cost 50%-80% more than term policies but normally offer a nice ROI on the extra premium (today, in the area of 5%).
