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Choosing the right life insurance starts with how you live your life
One of the most critical steps of the life insurance process is choosing the type of policy and amount of coverage. This step helps ensure that the policy provides sufficient benefits to supplement your assets and help your unique financial needs now and in the future.
Different types of coverage offer distinct benefits
The two general types of life insurance are term and permanent, which differ in key ways.
Permanent Insurance
Permanent life insurance is coverage that can last for the lifetime of the insured if the premiums are paid. The three major types are Whole Life, Universal Life and Variable Universal Life.
- Whole Life insurance provides coverage via a guaranteed death benefit for the insured’s entire lifetime and builds cash value at a guaranteed rate, with possible additional dividends.
- Universal Life insurance also builds cash value based on an interest rate and offers a death benefit.
- Variable Universal Life insurance offers the potential to build cash value based on market performance. The death benefit can also vary based on market performance. Keep in mind that a portfolio based on market performance is subject to market fluctuation and other investment risks.
Term Insurance
Term insurance provides a death benefit to the insured’s beneficiaries when the insured dies. The insured chooses how long they want to maintain the coverage, typically between 10 and 35 years. Deciding what duration of term insurance to buy can be a big decision for you and your family. Premiums paid for term insurance cover only the cost of insurance. This type of insurance does not generate cash value.
| Feature | Permanent | Term |
|---|---|---|
| Coverage Duration | Life | A specific number of years |
| Cash Value | Yes | No |
| Key Benefits | Cash value and protection | Protection only |
| Loans Available* | Yes, if there is cash value | No |
| Tax Benefits |
Federal-income-tax-free death benefit, which may be subject to estate taxes Tax-advantaged growth and opportunities* Tax-advantaged withdrawals* Coverage designed to last a lifetime Potential to build cash value Higher annual premiums vs. term Loans and withdrawals may reduce death benefit |
Federal-income-tax-free death benefit, which may be subject to estate taxes
Lower cost of death benefit protection Premium and death benefit ends when term ends, but the policy may have the option to be converted to permanent insurance |
* Distributions are taken through loans and withdrawals, which reduce a policy’s cash surrender value and death benefit and may cause the policy to lapse. Loans are generally income- tax-free. Withdrawals and surrenders are tax-free up to the cost basis, provided the policy is not a modified endowment contract (MEC). You should consult your tax advisor before taking a loan or withdrawal from a life insurance policy.
Understanding the financial benefits of permanent life insurance
This chart provides a comparison of the three major types of permanent life insurance.
(Please refer to our glossary below for more details on each life insurance policy type and
terms.)
| Feature | Whole Life |
Universal Life (UL) |
Variable Universal Life (UL) |
|---|---|---|---|
| Death Benefit |  |
|
|
| Builds Cash Value | |
|
|
| Guaranteed Cash Value | |
||
| Growth Tied to Interest Rates | |
||
| Guaranteed Minimum Rate | |
|
|
| Flexible Premiums | |
|
|
| Growth Tied to Investments | |
||
| Offers a Range of Investments | |
||
| Considered a Security | |
||
| Additional Options** | |||
| Benefits for Terminal Illness | |
|
|
| Death Benefit Increase | |
|
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| Long-Term Care Payments | |
|
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| Disability Premium Waiver | |
|
|
** Additional options may incur additional fees, depending upon the option and type of policy.
Glossary
A brief introduction to commonly used life insurance words and phrases.
Permanent Life Insurance
Life insurance that does not expire. Coverage can last for the lifetime of the insured if premiums are
paid. The main types are Whole Life, Universal Life and Variable Universal Life.
Whole Life
Type of permanent life insurance that provides coverage for the insured’s entire lifetime and builds
cash value at a guaranteed rate, with possible additional dividends.
Universal Life
Type of permanent life insurance that builds cash value based on an interest rate and offers a death
benefit.
Variable Universal Life
Type of permanent life insurance that builds cash value based on market performance. The death benefit
also varies based on market performance. Keep in mind a portfolio based on market performance is subject
to market fluctuation and other investment risks.
Death Benefit
Payout for your beneficiaries from term or permanent life insurance if you die while the policy is in
force. Typically, free of federal income tax and goes directly to the beneficiaries, bypassing probate
court.
Cash Value
The cash amount offered to the insured if the policy is surrendered, withdrawn or loaned against.
Guaranteed Minimum Rate
The lowest interest crediting rate on the cash value amounts in the policy.
Premium
The amount paid for an insurance policy.
Long-Term Care
Insurance coverage to pay for expenses for care at home, a nursing home or other approved facility.
Disability Premium Waiver
The waiver is a condition of an insurance policy that the insured will not have to pay the premium if
they are deemed disabled.
Term Insurance
Type of life insurance that provides a death benefit payment if the insured dies during a specified
term. The premium is locked in for a set duration, typically 10, 15, 20, 30, or 35 years. There may
be an opportunity to maintain coverage after the lock expires, but the premiums will increase.