What is life insurance? Types of life insurance

What is life insurance?

Life insurance is the type of insurance that covers life. In life insurance, insurer guarantees to give death benefit to the beneficiaries once an insured dies. 

Types of life insurance

Life insurance is categorized into two main types which are, term life and permanent life.

Term life insurance

Term life is a type of life insurance that covers a certain period of time, typically 5, 10, 20 and 30. The term life has an end date. After a term to be finished an insured can renew the term however in higher price than previous term. Term life insurance doesn't include cash value. Cash value is an amount that grows alongside your policy and you can borrow against or withdraw while you are alive.

Term life insurance is categorized into several types which are, level term, increasing term, annual renewable term, decreasing term and group term.

Level term

This is a type of term life insurance which fixed premiums as well as fixed death benefits. It is also known as Traditional term life insurance.

Increasing term

This is a type of term life by which death benefit increases over time, usually after a year. The increase of death benefit can be in percentage like 5% after five years or in flat rate like $20000 after five years. The death benefit will stop to increase once reach the limited amount.

Decreasing term

This is a type of term life by which death benefit decreases over time. Decreasing term is mostly used to cover loans.

Annual renewable term

This is a type of term life which covers a single year. It is also known as yearly renewable term. In annual renewable, a policyholder has to renew the policy each year. In most cases, premiums tend to increase each year too.

Convertible term

This is a type of term life that can be converted to other type(s) of life insurance. The policy conversion may required medical examination or not.

Group term 

This is a type of term life which covers more than one person. For instance, employees in an organization.

Permanent life insurance

This is a type of insurance that covers entire life of an insured. Permanent life has cash value that grows alongside your policy and is more expensive than term life. Permanent life is divided into several types which are, Whole, universal and indexed universal life insurance.

Whole life

This is a type of permanent life by which death benefit and premiums are fixed. 

Universal life

This is a type of permanent life that allows a policyholder to adjust death benefit. However, medical examination can be required for the adjustment.

Indexed universal 

This allow adjustment of death benefit just like universal life insurance, but the different is on how it's cash value is generated. In an indexed universal,cash value growth based on stock market index selected by the insurer.