In general there are two categories of life Insurance; Temporary insurance and permanent insurance. Temporary will provide coverage for a specified period of time; while permanent provide coverage for entire life of the insured or to the policy maturity at age of 100. Because of the market need the two categories are simplified into different basic types of life insurance to suit applicants’ requests. The policy issued can determined by applicants’ needs, premiums payment plan requested and type of the product the applicant is seeking.
Under the temporary insurance there is a basic type of insurance referred as term insurance. Term insurance will provide coverage for specified period of time, typically 1 to 30 years. If the policy is not renewed it automatically expires. This is less expensive policy because premiums are calculated to be sufficient to cover mortality and the short the covered time the less the risk of mortality, hence it has less expensive premiums. The policy is favorable for young applicants. Depending on the arrangement of premium payments and coverage requested, term policy is further disintegrated to suit the policy name with premium payment plans and type of coverage offered.
Level term policy provides coverage which remains the same for a specified period of time. The coverage is designed to cover premature death and afford the policy holder facing the financial difficulties the opportunity of obtaining the coverage because premiums are cheap. Term level policy can creates an optional of allowing the policy holder to divert the saved money on premium to savings and investments, while at the same time offering security to the beneficiaries incase of premature death.
An annual renewable term is policy which covers the insured for one year; it is renewable at the end of the coverage. Initially the policy is least expensive, but it becomes expensive as premiums goes up with renew every year. The policy serves young people in the initial years because of its least expensive feature; the policy holder should assess when to convert the policy to a whole life or long term policy as cost increases.
To cater for obligation such as mortgage responsibility, a policy holder can choose the decreasing term policy. The death benefits reduce gradually in specified schedule over the period of time. Because of the scheduled death benefits reductions, the policy is less expensive due to reduced coverage. The arrangement of diminishing benefits should be aligned to the reducing loan mortgage balance.
Increasing term policy has provision allowing increasing the death benefits for a stated percentage or for a given dollar amount. This is a rarely used policy and in most cases it is used as rider of cost of living expensive with other insurance policies.
Whole life insurance is permanent type of insurance which provide the coverage up to the time of death of the insured or up to the highest age on mortality table of 100 years. Premiums can either be level for life or to a specified age. After the payment of cash value of the policy at death or age of 100, the policy is said to have endowed or matured and is no longer in force.
Continuation premium whole life is traditional type of policy with level premiums for life and pays benefits up on death or attainment of age 100 years. Limited payment whole life is the contrast of the continuous premium whole life, unlike continues whole life payment which is for life, limited payment whole life is paid for specified time or age and there after the policy is regarded as fully paid. A different erection a policy holder can choose is to pay make one large premium payment at the beginning of the policy and make the policy full paid.
Depending on individuals coverage needs there are different approaches to be applied to address financial hindrance of the applicant.