Life Insurance Policies
Term insurance
Term provides pure death protection with no cash value. Level term keeps the face amount constant; decreasing term lowers it (mortgage protection); increasing term raises it. Renewable term guarantees the right to continue without new evidence of insurability, usually to a stated age, at increasing premiums. Convertible term allows exchange for permanent coverage; conversion at attained age costs more but requires no proof of insurability and no back premiums, while conversion at original age costs less premium but requires paying the difference plus interest and usually evidence of insurability.
Permanent insurance
Whole life has level premiums, guaranteed cash value, and a guaranteed death benefit. Variations: straight/ordinary (premiums to 100 or 121), limited-pay (20-pay, life paid-up at 65), single premium, modified (lower early premiums), and graded premium. Universal life unbundles the elements: flexible premiums, an adjustable death benefit (Option A level, Option B increasing by cash value), current interest crediting, and monthly cost-of-insurance deductions. Variable life and variable universal life invest in a separate account - the owner bears the investment risk, a prospectus must be delivered, and the producer needs a securities registration. Indexed UL credits interest tied to an external index, subject to a floor, cap, and participation rate.
Other forms: endowment (matures at a stated age), juvenile, family policy, joint/survivorship (first-to-die and second-to-die), and graded benefit policies for impaired risks.
Traps: dividends are not guaranteed and are not taxable until they exceed premiums paid; UL can lapse if underfunded; "whole life premiums are flexible" is false - that describes UL.
Worked example: a 45-year-old converts a term policy at attained age. The insurer uses the premium rate for age 45, requires no proof of insurability, and does not charge back premiums.