Different Types of Life Insurance
What is life insurance?
Life insurance is a legally binding contract between the insurer (insurance company) and the insured. The insured or owner of the life insurance policy agrees to pay a premium (monthly, quarterly, annually, or single lump-sum payment) to the insurance company in exchange for the insurance company agreeing to pay a lump sum payment to the insured or the named beneficiary if certain covered events occur.
Who needs life insurance? 
Life insurance can be issued and placed in force on a baby as young as 14 days old until 85 years young (depending on the insurance company’s age limit). We all wish to live forever, but unfortunately, our time here on Earth is limited. When people think of life insurance many think of burial expenses. Life insurance can be used for much more in addition to burial expenses, but this determination should be discussed with a life insurance agent to determine your family needs.
3 Major Types of Life Insurance
1. Term Life Insurance
• Term insurance is a contract with a predetermined expiration date. Term contracts can expire in 1 year, 10 years, 20 years, or 30 years. (There are different time limits offered by different companies)
• A benefit of getting a term policy is the premium payments are lower compared to getting a permanent policy
• Many insurance companies offer the policyholder the option to convert the term policy to a permanent policy before a certain date. The policyholder does not have to worry about going through the underwriting process if they decide to convert the policy from term to permanent.
• Term policies are great for individuals/families who may just be starting out with little income but wish to protect their family now with plans to convert later to a permanent policy when they have an increased income.
• Some term policies offer the insured the option to receive the premium payments or a percentage of the premium payments paid into the policy back at certain predetermined times or at the expiration date. These are called ROP (Return of Premium) Term Life Insurance.
• The downside of a term policy is that it expires, and if not converted before the expiration date the insured is at risk of not being able to obtain life insurance coverage.
2. Permanent Life Insurance (General Overview)
• Permanent insurance does not have an expiration date. As long as the premium payments are paid the insured is protected.
• Although permanent policies do not have an expiration date, they do have a maturity date. The maturity date on permanent policies can be from when the insured turns 100 years old until 121 years old. At the maturity age specified in the legal contract, if the insured is still living the insurance company with pay the insured the death benefit. 
• Permanent policies build cash value over time.
• Many permanent policies include living benefits at no additional cost called accelerated riders. An accelerated rider is a benefit insurance companies provide in the event the insured is diagnosed with a terminal, critical, or chronic illness (there are some limitations based on the state regulations).
• The downside of permanent life insurance is the premium payments are higher than term policies.
• Another downside is most permanent policies do not really start building cash value until about 7 years after it is issued
3. Final Expense Life Insurance
• Final expense policies usually range from $2,000 – $40,000 face amount
• They are used for burial costs and arrangements
• Policies are usually guaranteed issued with little to no underwriting
• Downside is premiums are higher. Usually for ages 45 and older who can not get approved for a term or permanent policy due to medical issues
• Many have a two-year clause before the insurance companies pay out the face amount to the beneficiary. If the insured passes away within two years of policy issuance, the insurance company will not pay out the face out of the policy. Instead, the insurance company will return all premium payments plus a set interest rate.
Each type of policy has subtitles which will be covered in future blog posts.
