Life Insurance: Types of Life Insurance Plans Available

In the world of life insurance, plans can be found to meet just about any life insurance needs or wants. There are 4 large groups of life insurance plans that are modified to produce a nearly infinite number of choices.

The first two major divisions are group and individual life insurance plans.

While many options exist in groups insurance plans, most are based on some type of plan that does not accrue cash value. Also, in group plans, each person within a class of employee or group membership will have identical types of life insurance plans, although the dollar value of the plan can vary based on variables such as salary. Executives in companies and officers in other groups will frequently be in a separate plan just for their subgroup. Individual plans are not as restrictive as group plans. They can accrue cash value, have savings accounts tied to them, and even pay dividends.

The next two divisions are term and whole life insurance plans.

Term life insurance is designed to offer a lower cost for a higher death benefit. However, this type of insurance does not accrue cash value. Most group plans are built around term insurance. Individual policies are split between whole life and term policies, depending on the purpose of the insurance purchase and the individuals needs. Whole life insurance builds cash value. This is like a savings account. It can accrue interest. You can even borrow against the equity at a reasonable interest rate. After enough money has accrued in the cash value, you can cash this type of policy in and collect the balance. Some whole life policies are written by mutual insurance companies. This means that the policy owners act as owners of the company. They earn dividends on their policy. These are added to the cash value of the policy to increase its worth and death benefit.

Many term insurance policies are purchased for a specific reason other than just the death benefit.

Some term insurance policies are linked to large loans or mortgages. The idea for this is to produce a way to retire the loan in the event of the death of the borrower. These policies are generally decreasing term insurance. The value of the policy decreases as the loan decreases. Doing it this way will keep the premium level throughout the life of the loan, although the insured is getting older and should be in a higher risk and cost category.

Term insurance policies can be a way to insure a dependent child while building a college fund.

Insurance companies can link a savings account with competitive interest rates to a term insurance policy. Each month when the premium is paid, part of it buys insurance. The rest of it is placed in a savings account. You can add extra amounts to these accounts at anytime that it is convenient. The interest is compounded. If this type of policy is purchased for an infant, the deposits can gain up to 50% above the amount deposited by the 20th birthday of the child. A universal life policy is similar to this, except that the savings account is attached to a small whole life policy. Unlike most whole life policies, the cost of the insurance on these policies will rise with the age of the insured. This is not really a problem if they are purchased for infants, because the cost of life insurance is ridiculously cheap for very young people.

You can purchase certain types of annuities that will have a death benefit.

These policies will guarantee your estate a given death benefit if you die before a specified age. At that age, you will begin receiving periodic cash disbursements from the annuity. These policies have a built in pay out to you as long as you survive. If you die before exhausting the value of the annuity, some have a burial benefit for you heirs. Others simply go away. The company keeps any left over balance. Read the fine print on this type of insurance to make sure that you understand what you are buying.

Some insurance comes with multiples of the indemnity.

Double and triple indemnity are common types of ways that this insurance is sold. The double or triple pay-out is related to how you die. To collect this benefit, your death usually has to be accidental. Some require you to be on a common carrier like a plane or a bus. The idea is that the insurer can recover part of this cost from the carrier that is responsible for your death. Some of these policies pay nothing if you do not die in an accident.