Types of Life Insurance Policies In choosing the type of life insurance policy you purchase, consideration must be given to the need which is being filled; e.g., creation of an estate, payment of estate settlement costs (federal and state death taxes,1 last illness and burial costs, probate fees, etc.), business buy-out, key-man coverage, etc.
Decreasing Term:Level premium, decreasing coverage, no cash value. Suitable for financial obligations which reduce with time; e.g., mortgages or other amortized loans.
Annual Renewable Term:Increasing premium, level coverage, no cash value. Suitable for financial obligations which remain constant for a short or intermediate period; e.g., income during a minor's dependency.
Long-Term Level Premium Term:Level premium, level coverage, no cash value. The annual premiums are fixed for a period of time, typically 5, 10, 15 or 20 years. Suitable for financial obligations which remain constant for a short or intermediate period; e.g., income during a minor's dependency.
Whole Life:Level premium, level coverage, cash values. Cash value typically increases based on insurance company's general asset account portfolio performance. Suitable for long-termobligations; e.g., surviving spouse lifetime income needs, estate liquidity, death taxes, funding retirement needs, etc.
Universal Life:Level or adjustable premium and coverage, cash values. Cash values may increase, based on the performance of certain assets held in the company's general account. Suitable for long-term obligations or sinking-fund needs: estate growth, estate liquidity, death taxes, funding retirement needs, etc. Universal Life with Guaranteed Level Premiums: Scheduled level premiums (policy can be scheduled to have one premium, multiple number of years or for life) with a guaranteed death benefit until the death of the insured.
1 Under the Tax Act of 2001, the federal estate tax is gradually phased out until its final repeal in the year 2010. If congress does not act at that time to repeal it for the years following, it will automatically revert back to the rates in effect during the year 2001, with an exemption for the first $1,000,000 of assets.