A life insurance policy is a contract between you and an insurance company. You agree to pay a regular premium. In return, the insurance company agrees to pay out a sum of money to your designated beneficiaries if you die before the policy’s term is up.
Depending on the type of life insurance you want, your policy may work differently. The main types include:
Your policy is for a specific term only, say 10 to 30 years, and your beneficiaries don’t receive any benefit if you outlive the set term. Your premiums can be level, increasing or decreasing throughout the life of the policy.
Similar to Term Life, your policy is for a specific term, but only pays a benefit in the event of accidental death, such as a traffic accident. In many cases, death from illness is not covered, so accidental death policies tend to be the least expensive option.
Your term is for life, and there’s a cash value component from which you may borrow or withdraw in the future. You pay level premiums throughout the life of the policy.
Similar to Whole Life, this type of life insurance is for life and includes a cash value account. However, some universal life policies offer more flexibility. For example, you can use your cash value account to help pay your premiums.
Read more about each type of life insurance.