What are the basic types of life insurance products out there?

There is a confusing array of life insurance products, almost rivaling the mutual fund industry and its bewildering variety of choices. With over 1,500 life insurance companies active in the business, with each company offering several different types of policies (contracts), you can see that there are many thousands of policies available.

No guide, advisor, or reference can feasibly cover every type of policy and every nuance. Yet there are major similarities between certain types of life insurance contracts. For example, a Universal Life policy issued by Company A will be similar to a Universal Life policy issued by Company B. State insurance regulations make this so. This chapter is designed to help you understand the different types of policies.

All life insurance policies promise to pay an agreed sum of money if the insured person should die while the policy is in-force, but all life insurance policies are not the same. A wide variety of plans are available. Some policies provide permanent coverage while other coverage is only temporary (term life insurance).

Some policies build cash values (permanent life insurance) while others do not (term life insurance). Some policies combine different kinds of insurance (i.e., a permanent base policy with a term “rider”), and yet others let you change from one type of insurance coverage to another. Your choice should be based on your needs and what you can afford. Some permanent life insurance policies allow you to add additional term life insurance during the period of your greatest life insurance need. Usually the term insurance is on your life, but it can also be bought for your spouse and children if needed.

Examples of types of permanent life insurance are: Whole Life, Universal Life, Variable Life, Variable Universal Life and Indexed Life Insurance.