Types of Life Insurance

Life insurance is seperated in to two broad categories: term life insurance, and permanent life insurance, (also called Whole Life Insurance).

Term life insurance, just as its name suggests, exists for a specific duration, typically 10, 15, 20, or 30 years while a permanent life insurance policy is life time coverage and does not expire as long as the premiums are paid.

Within each of these categories there are many subcategories which we explore in greater depth in a moment. Let's start with term life insurance .

Term Life Insurance--Level Term

Most people who life insurance have a term life insurance policy, and the most popular kind of term life insurance is something called level term.

This means that the premium amount is level throughout the entire duration of the term. As mentioned, it is bought only for a specific duration of time, and unlike a permanent or whole life policy, it does not build a cash value.

Also because it does not build a cash value, Term Life Insurance does offer different kinds of investment opportunities the way whole life insurance does.

Term life insurance happens to be very popular with millions of people, however, because it very, very cheap.

And it has become cheap because, unlike in the past, people can come to a site like Beyond Quotes and look at dozens of plans and compare prices in about 2 minutes.

In fact, many people who have never priced life insurance are very suprised to find that a very great amount of coverage for small monthly premium.

For example, $20 a month can purchase a policy with a face amount of several hundred thousand dollars even for someone is their 40's if they are determined to be n excellent health.

Which brings up the next point...

For most kinds of life insurance, including Term Life Insurance, a person is required to qualify.

In order to do so, most people who buy term life insurance agree to undergo a medical exam for the purposes of determing their rating class which in turn will determine the amount of money they are required to pay for a given policy.

This exam will typically include a blood and urine test, blood pressure reading, cholesterol reading, recording of weight, and a questionaire about one's health history.

If a large sum of life insurance is being applied for, an EKG and a chest x-ray may also be required.

No Exam Life Life Insurance

For those who do not have the time or inclination to submit to a medical exam, there is also something called No Exam Life Insurance.

This is also a form of term life insurance which one is still required to qualify for, but instead of having to submit to a medical exam, all that is required is a written health questinaire.

No Exam Life Insurance is different from a regular term policy in these respects:

• No Exam Life Insurance Policies usually have a ceiling of only $250,000
• No Exam Life Insurance can sometimes cost more than a regular term policy (but not always)
• There is no medical exam required, as the name suggests
• No Exam life insurance policies can be issued in days or even hours whereas a regular term policy requiring an exam can take weeks or months

Virtually every kind of life insurance has many different rating classes, and each life insurance company goes about underwriting (which is the art of determining what rating class a particular applicant falls in, among other things) a different way.

The important thing to know is that about 50% of all life insurance applicants only qualify for what is called the Standard Life Insurance Rating Class.

In many cases, the price that one pay for No Exam Life Insurance may not be significantly more and in some cases even less than what it might cost to get a policy for which one is required to take a medical exam.

An experienced agent such as the kind you will be able to find if you buy your policy through Beyond Quotes will be able to help you make this determination.

There certainly isn't any reason to go through all the bother of getting a regular term policy if you can get a no exam life insurance term policy without undue trouble.

Return of Premium Term Life Insurance--ROP Life Insurance

If you are considering a purchase of term life insurance, sooner or later you are probably going to hear the the words ROP which stand for Return of Premium.

The way this works is simple. You pay more for a term insurance policy, and at the end of the term, if you are still alive, the entire amount of money you have spent on premiums is returned to you.

Sounds great, right? Well, from the perspective of someone versed in financial planning, it probably isn't.

Life insurance companies are able to offer this because they will be able to earn interest from the additional premium that will come to a greater amount the premiums you have paid in over the years.

Oddly enough, the longer the term length is with ROP, the less it costs. That's right, all things being equal, a ten year term ROP policy will cost more than a 30 year ROP term policy with the same face amount.

There is a much shorter period of time during which the life insurance company is able to recoup the investment for a 10 year ROP term policy.

Therefore, more capital is needed to cover the cost of the premiums.

Getting an ROP life insurance policy is not necessarily the worst thing you can do with your money if you do not have the opportunity or self-discipline to invest the money you hopefully would have saved by getting a regular term policy.

Everyone else should think very carefully before getting an ROP Term Life insurance policy. Keep in mind, however, that life insurance agent's are going to sing the praises of Return of Premium Life Insurance because it makes them about twice as much money as a regular term policy.

But if you run the nubers it doesn't make a lot of mathematical sense even if it might initially seem appealing.

The Importance of Guaranteed Renewability

If there is one rider worth having for any Term Life Insurance policy, no matter what kind it is, it is something called guaranteed renewability.

This provisions guaranteed you the right to convert your term life insurance policy in to a permanent policy without having to provide evidence of insurability.

If you buy a 30 year term life insurance policy at the age of 45, by the time you are 75 you may have a real need for a whole life insurance policy which is more often used for the puposes of estate planning.

As you age, the chances that you will be able to qualify for life insurance decrease dramatically, so this is a very important thing to have.

Annual Renewable Term

This kind of term policy is guaranteed renewable every year, but, unlike a level term policy, the amount of premium required each year to keep the policy in force will increase as the insured ages.

Permanent Life Insurance

Whole Life Insurance

Cash Value Life Insurance

Permanent life insurance is the other broad category of life insurance.

There are many different kinds of permanent life insurance, including univeral whole life, universal variable life, etc, but it is different It is different from term life insurance in the following respects:

• It builds what is called "cash value"
• The accumulated cash value can be borrowed against
• It is much, much more expensive than Term Life Insurance
• It does not expire the way term life ins does

Permanent life insurance is useful for those who have a permanent need for life insurance. Most frequently, these two needs are:

• Estate planning
• Providing ongoing financial support for a special needs individual

A permanent policy of one kind or another is often superior than a Term Life Insurance policy for both of these needs.

One does not consider estate planning needs, obviously, until one actually has an estate.

For most people this is after age 50, and rarely before the age of 30. Since term insurance expires eventually it is not suitable for this purpose just as it isn't for providing financial resources for a special needs child for the exact same reason.