Life Insurance Policies
Policy families
Term insurance provides death protection for a limited period and generally has no cash value. It may be level, decreasing, increasing, renewable, or convertible. Whole life is permanent, has guaranteed premium and cash value, and may be limited-pay, single-premium, or modified. Universal life is permanent and flexible: the owner may adjust premium and death benefit, but cost-of-insurance charges and interest credits are not guaranteed. Variable life and variable universal life place cash value in separate accounts and are securities products requiring a prospectus. Indexed universal life credits interest with a floor and cap linked to an index.
Other forms include joint life, survivorship, graded premium, modified premium, and endowment. Joint life pays on the first death; survivorship pays on the last death and is often used for estate planning. Graded and modified policies start with lower premiums that increase later. Endowment policies mature at a stated age, but they are less common today.
Traps
Do not say universal life has guaranteed cash value or fixed premiums. Do not say term builds cash value. Variable products require both insurance licensing and securities registration. Indexed products are not direct stock market investments; caps, participation rates, and floors limit crediting.
Worked example
A universal life policy with a level death benefit option keeps the death benefit fixed while cash value grows. If the cash value grows, the amount at risk falls, and cost-of-insurance charges are generally based on the net amount at risk. Poor crediting or unpaid charges can cause the policy to lapse unless the owner pays more.