Life Insurance Policies
Term
Term is pure death protection with no cash value: level, decreasing (mortgage protection), increasing, annually renewable, convertible, and return of premium. Renewable term guarantees the right to continue; convertible term guarantees exchange for permanent coverage without new evidence, usually at attained-age or original-age rates.
Permanent forms
Whole life charges a level premium for life and builds guaranteed cash value: ordinary (to 100 or 121), limited pay (20-pay, paid-up at 65), and single premium. Participating policies pay dividends - a return of divisible surplus, never guaranteed. Universal life unbundles the components: flexible premium, adjustable death benefit, monthly cost of insurance, current versus guaranteed interest and mortality. Option A pays a level death benefit with growing cash value (corridor); Option B pays face plus cash value. Variable and variable universal life hold cash value in a separate account and are securities - securities registration and a prospectus are required. Indexed UL credits interest by formula with a cap, participation rate, and floor.
Specialty and group
Survivorship (second-to-die) pays at the second death and suits estate tax planning; joint life pays at the first. Group life is typically annually renewable term with conversion rights. Endowment matures at a stated age if the insured lives.
Tax trap
A policy failing the 7-pay test is a modified endowment contract: loans and withdrawals are taxed gain-first and carry a 10% penalty before age 59½.
Traps: treating UL as a security (only variable is), and assuming dividends are guaranteed.
Rule of thumb: term buys the most death benefit per dollar; permanent buys guarantees and cash value.