Life Insurance Basics and Policy Types
Term insurance
Term covers a defined period with no cash value: level, decreasing (mortgage protection), increasing, annually renewable (ART) - cheapest in year one, costliest later - renewable (guaranteed renewal without evidence of insurability, premium recalculated at attained age), and convertible (attained-age or original-age conversion; original age costs more but preserves younger rates).
Permanent insurance
Whole life: level premium, guaranteed cash value, matures at the stated age. Variations include limited-pay, single premium, modified (reduced early premiums) and graded premium. Universal life unbundles the elements: flexible premium, monthly mortality and expense charges, interest credited to cash value, with Option A (level) or Option B (increasing - face plus cash value) death benefits, a corridor test, and lapse risk if funding is too low. Indexed UL credits index-linked interest subject to a cap, participation rate and floor. Variable life puts cash value in a separate account; it is a security requiring a prospectus and a securities license, and the owner bears the investment risk.
Also know joint/survivorship (first-to-die, second-to-die for estate planning), family income, and endowment.
Trap: convertible is not the same as renewable - conversion buys permanent coverage, renewability only extends the term. In UL Option B the death benefit rises as cash value rises; in Option A it stays level until the corridor forces an increase.
Worked example: A client wants maximum death benefit per premium dollar until the children are grown - level term. A client wants lifetime coverage plus guaranteed forced savings - whole life.