Types of Life Insurance Policies
Term insurance
Term provides pure protection for a stated period with no cash value. Level term keeps the face amount constant; decreasing term shrinks (mortgage protection); increasing term grows; annually renewable term (ART) renews each year at a rising premium. Renewable riders guarantee the right to continue without new evidence of insurability; convertible riders let the insured exchange term for permanent coverage without proving health, usually at a higher premium. Conversion is valuable precisely when health has deteriorated.
Permanent insurance
Whole life charges a level premium for life (or for a limited period) and guarantees the death benefit and cash value. Universal life unbundles the pieces: the premium is flexible, and the policy is credited with interest while mortality charges are deducted monthly. Universal life has no guaranteed cash value - it can lapse if the interest credited is lower than illustrated, which is why illustration-vs-guarantee questions appear so often. Option A (level) keeps a constant death benefit; Option B (increasing) adds the cash value to the face amount.
Variable life and variable universal life place the cash value in subaccounts tied to securities markets, shifting investment risk to the owner. They are securities as well as insurance, sold with a prospectus by producers holding a securities registration. Indexed universal life credits interest by a formula tied to an external index, subject to a cap and a floor.
Traps
Modified and graded-premium policies trade lower early premiums for a smaller early death benefit. Endowment contracts, which matured while the insured lived, are no longer sold as new products. And remember: a policy funded beyond the seven-pay limit becomes a modified endowment contract, losing favorable loan and distribution tax treatment. Term convertible into permanent is generally the best answer when health has changed.