There are only basically two types of life insurance – term life and whole life insurance. Term life is just life insurance. If you die your surviving family members will have money to pay off debts and mortgages. Whole life functions as an investment (an asset that increases in value) and life insurance. A whole life policy is something that after a period of time will actually have some monetary value and will be something you can borrow against or cash out.

The other terms that you hear about are basically variations on the term or whole life policy. Listed below are some of the more common variations of term life and whole life. New types of term life and whole life are constantly being invented so whatever you purchase make sure you understand what you are getting.

Term Policy Life Insurance

Term Policies provide life insurance for a certain length of time. These policies provide benefits in the event of death, but they never have a cash value. As you age term insurance becomes more expensive because the likelihood the insurance company will have to pay off get bigger.

Whole Life or Cash Value Life Insurance

Cash Value or permanent insurance pays a death benefit whenever you die. There are three major types of whole life or permanent life insurance – traditional whole life, universal life, and variable universal life, and within each of these three categories they are more variations.

Whole Life Insurance

Whole Life Insurance – has guaranteed premiums (the amount of money you have to pay each month) and death benefits, and a minimum interest rate on your accumulated monies. In other words, you pay your premiums every month and part of the premium goes into something like a savings account and you earn a minimum of 3% on the money in that account. No matter what the current interest rate is you get that 3%.

Universal Life Insurance

Universal Life Insurance lets you change some of the features of your policy if you want. For instance you can increase the death benefit if you pass a medical examination. The savings part (called a cash value account) usually earns a money market rate of interest. The money market rate is a bit higher than the just a plain savings account rate.

Variable Life Insurance

Variable Life Insurance – the only thing different about variable life as compared to universal life is how the savings account works. With variable life insurance you choose what kinds of investments your money goes into. Instead of just a plain money market account you can choose from a variety of mutual funds or buy stocks and bonds.

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