Life Insurance

There are many types of life insurance to fit individual needs and circumstances. The following are some of the basic types of life insurance available.

• Term insurance -- The simplest form of insurance. You purchase coverage for a specific price for a specified period. If you die during that time, your beneficiary receives the value of the policy. There is no investment component.
• Whole life -- The policy covers your "whole life", not just a set period. Premiums remain level throughout the life of the policy, and the company invests at least a portion of your premiums. Some firms share investment proceeds with policyholders in the form of a dividend. Many companies will offer "a relatively low guaranteed rate of return," but in reality pay at a rate in excess of the guarantee.
• Universal life -- You decide how much you want to put in over and above a minimum premium. The company chooses the investment vehicle, which is generally restricted to bonds and mortgages. The investment and the returns go into a cash-value account, which you can use against premiums or allow to build. There are generally two types of Universal Life policies. With Type I or Type A, the cash account goes toward the face value of the policy on the death of the policyholder. With a second variety, sometimes called Type II or Type B, the beneficiary receives the face value of the policy plus all or most of the cash account. While Type II is meant to provide a partial hedge against inflation, it demands higher premiums than Type I as you get older.

• Variable life -- With a variable life policy, there is usually a wider selection of investment products, including stock funds. As with a universal policy, returns on investments can offset the cost of premiums or build in the account. Depending on the type of policy, the beneficiaries will either receive the face value of the policy or the face value plus all or part of the cash account.

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