There are many types of life insurance policies, each are catered depending on the needs of the client. We will only focus on the four (4) popular types.

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What Are the Different Types of Insurance Policies?

• Whole Life Insurance
• Universal Life Insurance
• Variable Life Insurance
• Term Life Insurance

How Does Each Type of Insurance Work?

Whole Life Insurance

• A permanent type of insurance that is a combination of life coverage and an investment fund
• The investment component is placed on low-risked investments
• The policy is in effect in the whole course of the insured's lifetime
• The savings/investment component allows the insured to earn "cash value" and dividends
• The policyholder can withdraw the earnings and can also take a loan from the policy
• The whole life policy has a much more expensive premium compared to term life insurance. However, you will only pay a fix amount throughout the years

Universal Life Insurance

• This works the same as the Whole Life Insurance policy but with an added feature of being flexible
• The investment component growth is based on the current interest rates or the interest rates set by the insurer
• If whole life offers a fix premium payment and a fix benefit, Universal life gives the insured the freedom to increase or reduce the benefit and the investment component. Also, the premium payment can be paid at different amounts or at different times (depending on the set minimum amount/time by the insurer)

Variable Life Insurance or Variable Universal Life Insurance

• This works the same as the Universal Life Insurance policy
• The investment component is placed on "Sub-Accounts", which are similar to mutual funds but are only available for purchase within the Variable life policy. Meaning, investors can't buy this investment component via a regular security issuing company

Term Life Insurance

• A kind of insurance policy that offers only life coverage. There is no investment component included
• Term life can also be called Temporary Life Insurance because the policy is in effect only in a set period of time. The contract can range from 5, 10, 15, 20, 25, 30 years
• If the insured outlives his/her term contract, the coverage ends and the insured/beneficiaries will not receive any benefit
• Unlike whole life insurance, renewing a term life will incur a much higher premium because of the insured's age, which increases the likelihood of mortality within the contract coverage
• Term Life is the cheapest insurance policy when starting at an early age

Key Takeaways

Whole Life Insurance Policy

• Lifetime coverage
• High but fix premium payment
• Guaranteed benefit
• Guaranteed cash value regardless of market performance

Universal Life Insurance

• Lifetime coverage
• Flexible payment scheme
• Benefit and Investment component can be increased or decreased
• Guaranteed benefit
• Guaranteed minimum interest rates regardless of market performance

Variable Universal Life Insurance

• Lifetime coverage
• Guaranteed benefit
• Investment component is placed on sub-accounts that are similar to mutual funds
• The investment component is high risk but offers also high reward if managed correctly.
• Earnings is dependent on the market performance

Term Life Insurance

• Limited coverage depending on the contract
• Guaranteed benefit
• No investment component
• If insured outlives the contract, no benefit will be received
• Renewal premium is much higher because of age
• The cheapest of all insurance policy if acquired at young age

When purchasing any of these policies, be sure to do your research and have a talk with an authorized agent. Because getting an insurance is an added expense, so make sure that you are able to sustain the fees during the course of the payment period without sacrificing too much.





- The Affluent Perspective by Ælfræd "Elf Counsel"