Life Insurance Policies
Term insurance
Term is pure protection with no cash value and the lowest initial premium. Know the flavors: level term (face constant), decreasing term (face falls, premium level - often mortgage protection), increasing term, and annually renewable term (ART). Renewable term guarantees the right to continue without new evidence at a higher premium; convertibility allows exchange to permanent coverage, usually without evidence, before an age limit. Trap: term premiums rise with attained age at each renewal.
Permanent insurance
Whole life is level premium, guaranteed cash value, and endows at maturity (typically age 100 or 121). Forms: ordinary (continuous premium), limited-pay (20-pay, life-paid-up-at-65), and single premium. Universal life separates the mortality charge from the cash account; the owner controls premium flexibility and may choose Option A (level death benefit) or Option B (increasing death benefit). The corridor test ensures the death benefit stays large enough relative to cash value to retain tax status. Variable life and variable universal life pass investment risk to the owner and require a securities license plus a prospectus. Indexed UL credits interest tied to an index with caps, floors, and participation rates.
Also know modified/graded premium (lower early premium, higher later), survivorship (second-to-die) for estate planning, juvenile, family income, and endowment contracts.
Dividends and nonforfeiture
Dividends are a return of divisible surplus - not guaranteed and not taxable until they exceed basis. Dividend options include cash, reduce premium, accumulate at interest, paid-up additions, and one-year term. Nonforfeiture options (whole life) are cash surrender, reduced paid-up, and extended term.
Worked example: a 40-year-old wanting maximum death benefit per dollar with a 20-year need and a plan to convert later - level 20-year renewable and convertible term, with the conversion privilege preserved.