Term life insurance policies provide for life insurance
coverage for a specified term of years for a specified premium. The
policy does not accumulate cash value. A term life insurance policy
is generally considered pure insurance, where the premium buys
protection in the event of death and nothing else. Term insurance
premiums are typically low because both the insurer and the policy
owner agree that the death of the insured is unlikely during the
term of coverage.
Whole Life or Permanent life insurance Coverage
Whole life insurance provides for a level premium, and a cash
value table included in the policy guaranteed by the company. The
primary advantages of whole life are guaranteed death benefits,
guaranteed cash values, fixed and known annual premiums, and
mortality and expense charges will not reduce the cash value shown
in the policy. The primary disadvantages of whole life are premium
inflexibility, and the internal rate of return in the policy may
not be competitive with other savings alternatives.
Universal Life Insurance Coverage
Universal life insurance - UL - is a relatively new insurance
product intended to provide permanent insurance coverage with
greater flexibility in premium payment and the potential for a
higher internal rate of return. A universal life policy includes a
cash account. Premiums increase the cash account. Interest is paid
within the policy or credited on the account at a rate specified by
the insurance company. This rate has a guaranteed minimum but
usually is higher than that minimum. Mortality charges and
administrative costs are charged against and reduceed the cash
account. The surrender value of the policy is the amount remaining
in the cash account less applicable surrender charges, if any. But
universal life has its own disadvantages which stem primarily from
this flexibility. The policy lacks the fundamental guarantee that
the policy will be in force unless sufficient premiums have been
paid and cash values are not guaranteed.
