Life Insurance Definitions


I. Term Life is a very practical, affordable type of coverage for short term needs but it becomes expensive over time. Many choose term life to cover shorter-term needs such as home mortgage debt or children's education, in the event of an untimely death. In the short term, it is the most affordable; long term, it may become too expensive to maintain.


II. Whole Life is sometimes called "permanent life". It is designed to cover an entire lifetime as opposed to a specific "term" (10, 15, 20 or 30 years). Whole life premiums never change and the death benefit is guaranteed as long as premiums are paid. Cash values allow for tax free loans against the policy.


III. Universal Life provides for flexible premiums. This means that instead of the same monthly payments required in whole life, universal life gives you greater control. Generally, interest rates for this type of policy are higher, and certain minimum interest rates are typically credited to the policy.


IV. Equity Indexed Universal Life is insurance tied to market gains, but without the risk of downside loss. As with other insurances, beneficiaries receive a tax free death benefit. The cash values inside an equity indexed UL grow tied to a market index. If the policy is set up properly, tax free loans can be made.


V. Variable Life offers potential for greater returns within the cash value account. However, unlike Equity Indexed UL, this type of policy is tied to market gains typically through mutual funds, and cash values will fluctuate with mutual fund gains or losses.


VI. Single Premium Life requires one lump sum payment. This type of account has the benefit of tax-free distributions to heirs, however loans against cash values are taxable. The main reason to buy Single Premium is for tax-deferred growth followed by tax-free transfer to beneficiaries. Some types of Single Premium may be used to transfer assets but retain access to funds for medical emergencies such as long term care. Once the single payment is made, there are no additional premiums due.