Life Insurance Policies: Term, Whole Life, Universal, Variable, and Group
Term life
Term provides pure death protection for a stated period with no cash value. Variations include level, decreasing (mortgage protection), increasing, annually renewable term (premium increases each year), convertible term (to permanent at attained or original age), and return of premium (higher premium refunded if the insured outlives the term). Term is the cheapest way to buy a large face amount temporarily.
Whole life
Ordinary (straight) whole life charges level premiums to age 100/121 with guaranteed death benefit and guaranteed cash value. Limited-pay (20-pay, paid-up at 65) compresses premiums; single premium creates immediate cash value and usually makes the policy a modified endowment contract. Modified/graded premium policies charge lower early premiums. Dividends on participating policies are not guaranteed.
Universal life
UL unbundles the policy into cost of insurance, expenses, and interest credited. Premiums are flexible, but underfunding can cause lapse. Option A pays a level death benefit; Option B pays face amount plus cash value (requiring the corridor test). Minimum guaranteed interest, surrender charges, and mortality charges apply. Indexed UL credits interest based on an index subject to caps, floors, and participation rates.
Variable life
Cash value is held in a separate account and fluctuates with subaccount performance. Variable products are securities: they require a prospectus, securities registration, and a securities license in addition to the life license.
Specialized coverage
Group life uses a master policy and certificates, with conversion rights; survivorship (second-to-die) funds estate taxes; joint life pays on the first death; credit life protects a lender; key person protects a business.
Trap
Extended term and reduced paid-up are nonforfeiture options, not term policy types - and term policies have no nonforfeiture values.