Types of Life Insurance

You’ve made the all-important decision to purchase a term life insurance policy but are unsure of which policy best fits your needs. In this section we define and compare the following types of life insurance: regular term life insurance, senior life insurance, and a child life insurance. Term Life Insurance A term life insurance policy provides life insurance coverage for a specified time period and at a specified premium, or payment amount. Whether you have child life insurance or senior life insurance, if the policy is specified as being a “term” policy, it expires once the insured individual reaches a certain age. Once the individual has passed the agreed upon age and the life insurance policy has expired, no payout is required. Permanent Life Insurance Permanent life insurance is a life insurance policy that remains in force until the policy matures and pays out. The life insurance policy cannot be canceled for any reason, except application fraud. Permanent life insurance builds value (referred to as cash value) as the policy holder makes their premium payments. As this happens the risk and expenses for the insurer reduces over time. There are three types of permanent life insurance policies: Whole life, Universal and Endowment. Whole Life Insurance Whole life insurance provides for a level premium, and a cash value table specified in the policy guaranteed by the life insurance company. The primary advantages of whole life insurance are guaranteed death benefits, cash value, and fixed annual premiums. Also, mortality and expense charges will not reduce the cash value of life insurance policy. A disadvantage of whole life may be that the internal rate of return may not be competitive with other savings alternatives. Universal Life Insurance Universal life insurance includes a cash account. Premiums increase the cash account. Interest is paid within the policy (credited) on the account at a rate specified by the life insurance provider. This rate may have a guaranteed minimum (for fixed ULI) or no minimum (for variable ULI). Mortality charges and administrative costs are then charged against (reduce) the cash account. The surrender value of the policy is the amount remaining in the cash account, less applicable surrender charges, if any. Endowment Life Insurance Endowments are policies in which the cash value built up inside the life insurance policy equals the death benefit (face amount) at a certain age. The age this commences is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life insurance or universal life insurance because the premium paying period is shortened and the endowment date is earlier. Accidental Death Insurance Accidental death is a limited life insurance policy, designed to cover the insured in the event of death due to an accident. Accidental death insurance has certain stipulations, and does not typically cover death resulting from health problems or suicide. Because this insurance only covers accidental death, this type of policy is much less expensive than other NZ life insurance. It is also commonly referred to as "accidental death and dismemberment insurance,” also known as an AD&D policy. In an AD&D policy, benefits are available not only for accidental death, but also for loss of limbs or bodily functions such as sight and hearing. Term life insurance is another very popular insurance policy here in New Zealand. Use the chat function at the top of this page to speak with term life insurance brokers in your area. You can discuss child or senior life insurance policies.It’s easy and it’s free.