Life Insurance Policies
Policy families
Term insurance provides death protection for a stated period, builds no cash value, and may be level, decreasing, increasing, renewable, or convertible. Whole life is permanent, level-premium, and builds guaranteed cash value; limited-pay and single-premium versions compress premiums. Universal life separates mortality charges, expenses, and interest, allowing flexible premiums and adjustable death benefits; guarantees vary and illustrations are not promises. Variable life and variable universal life place cash value in separate accounts and are securities products requiring securities registration. Indexed universal life credits interest by formula tied to an index, subject to caps, floors, and participation rates. Endowment and juvenile policies, mortgage redemption, credit life, and group life serve particular needs. Modified endowment contracts fail the 7-pay test and receive harsher tax treatment.
Traps: saying term has cash value; assuming UL premiums are guaranteed; ignoring that variable products shift investment risk to the owner; and treating a policy illustration as a guarantee. Worked rule: identify the risk bearer. The insurer bears mortality risk in term and whole life; the owner bears investment risk in variable products. Example: a 30-year level term policy pays only if death occurs during the term, while a whole life policy can build cash value and remain in force for life if premiums are paid.