What Are The Different Types Of Life Insurance Policies?

The following are different types of life insurance policies and their characteristics. Keep in mind that the intent of life insurance is to provide for the life of your heirs and/or beneficiaries for such things as payment of debts and to provide family income. In addition, the policy can provide supplemental income for retirement.

TERM LIFE

Low initial premium.
May be renewable and convertible to whole life insurance.
Protection for a specified period.
Premium increases with each new term.
Typically no cash value.

TRADITIONAL WHOLE LIFE

Permanent protection.
Fixed premium.
Fixed cash value.
Fixed death benefit.
You can defer taxes on the earnings generated by the policy until you withdraw cash, take out a loan policy, or receive annual interest earnings on dividends.

UNIVERSAL LIFE

Flexible premium.
Flexible death benefit.
Cash value reflects premiums paid and current interest after deducting the cost of death benefits and other expense charges.
You can defer taxes on the earnings generated by the policy until you withdraw cash or take out a policy loan.

EXCESS INTEREST WHOLE LIFE

Permanent protection.
Fixed premium.
Fixed death benefit.
Cash value growth depends on current interest credited to the cash value account. If you have a fund and your insurance company credits excess interest to the fund it will grow faster.
You can defer earnings generated by the policy until you withdraw cash, take out a loan policy, or receive annual interest earnings.

VARIABLE LIFE

Longterm protection.
Fixed or flexible premiums.
Policyholders sometimes control the investment of their cash values in stock, bond, money market or other accounts and bears all the investment risk.
Death benefits and cash values vary in relation to the performance of funds in a separate account.
You can defer taxes on the earnings generated by the policy until you withdraw cash or take out a policy loan.

ACCELERATED DEATH BENEFITS

Some life insurance companies offer to pay a portion of the death benefit of a policy before death occurs if the policyholder is diagnosed as terminally ill and wants to use the money.
Upon the death of the insured, the beneficiary receives the remainder of the death benefits.
The policyholder may pay an additional premium on the base policy for this option; or the insurer may assess a charge against the death benefit or accelerated payment.

VIATICAL SETTLEMENTS
Some terminally ill patients may hold life insurance policies with companies that do not offer accelerated death benefits. A viatical settlement can provide cash benefits prior to death.

A viatical settlement is a contract in which the terminally ill owner of a life insurance policy sells the death benefit of their policy to a third party in return for immediate cash payment.

The investor or investors who purchase that right become the beneficiary in exchange for a negotiated amount, which is lower than the face value or death benefit of the policy. In addition, the investors take over the premium payments. Investors in viatical contracts recoup their investment when the full death benefits are paid upon the death of the original policy owner.

A viatical contract requires close scrutiny by the original policy owner since these agreements are complicated financial and legal transactions. If you are considering such a contract, you may want to consult with your attorney, physician, life insurance agent or company, and accountant or financial planner. Proceeds from the settlement may create tax liability and affect Medicaid eligibility.

DISAPPEARING PREMIUMS
Life insurance policies with accumulated cash values frequently offer the policyholder the option of using the policy's cash value or dividends to cover premium payments at a future date. Although the premiums seem to disappear, payments are still being made from the policy's cash values.

If you elect this option, you should carefully monitor your policy's cash value. Changes in interest rates, cost of insurance, policy expenses and loans can quickly eliminate your policy's ability to pay for itself. Such changes could force you to resume premium payments to keep your policy.

Other Montana Insurance FAQs

Q: What Is An Agent?
A: An agent is a licensed representative of an insurance company who solicits, negotiates, or effects contracts of insurance and provides service to the policyholder for … More
Q: What Is An Application?
A: An application is a signed statement of facts requested by the insurance company on the basis of which the company decides whether or not to issue the coverage. The … More
Q: What Is An Assignment?
A: An assignment is the signed authorization by the policyholder for the insurance company to pay benefits directly to the hospital, doctor, or other provider.
Q: What Is A Beneficiary?
A: A beneficiary is the person designated or provided for by the policy terms to receive the proceeds upon the death of the insured.
Q: What Are Benefits?
A: Benefits are the dollar amount payable by the insurance company to the claimant, assignee, or beneficiary under the policy.
Q: What Is A Claim?
A: A claim is a demand to the insurance company for payment of benefits under the insurance contract.
Q: What Is Cobra?
A: COBRA is a federal law that regulates group health insurance. If you lose your job and you worked for an employer who has more than 20 employees, you may be able to … More
Q: Can I Be Denied Group Coverage In Montana?
A: Coverage under your group health plan (if your employer offers one) cannot be denied or limited, nor can you be required to pay more because of your health status. … More
Q: Can I Be Denied Group Coverage If I Am Sick At The Beginning Of The Coverage Period?
A: All group health plans in Montana must limit exclusion of preexisting conditions. There are rules about what counts as a preexisting condition and how long you must … More
Q: Can I Be Forced To Wait For My Group Coverage To Begin?
A: Yes. This is called the preenrollment period, usually between 3090 days. These waiting periods, however, cannot vary due to your health status. However, if … More