Life Insurance Policies
This topic goes deeper into the specific policy designs an applicant can choose, including the variations within term and whole life and the market-based options of variable and variable universal life. Matching the right policy to a client's goals is a core producer skill.
Types of Term Insurance
Level term keeps both the death benefit and premium constant for the term and is the most common form. Decreasing term has a level premium but a death benefit that declines over time, matching a shrinking obligation such as a mortgage. Increasing term has a benefit that rises over time, often used with return-of-premium designs or riders. Return-of-premium term is level term that refunds the premiums paid if the insured survives the term, at a higher cost. Annual renewable term can be renewed each year without new evidence of insurability, though the premium rises with age.
Variations of Whole Life
Straight (ordinary) whole life spreads level premiums over the insured's lifetime. Limited-pay whole life concentrates premiums into a shorter period (such as 20-pay life or paid-up at 65), after which no more premiums are due but coverage continues for life; premiums are higher during the payment years. Single-premium whole life is fully paid with one lump sum. Modified whole life charges lower premiums in early years and higher premiums later. Each variation is still permanent insurance with lifetime coverage and cash value; they differ mainly in how the premium payments are scheduled.
Universal Life Death Benefit Options
Universal life offers two death benefit structures. Under Option A (level), the total death benefit stays roughly equal to the face amount; as cash value grows, the net amount at risk (pure insurance) declines so the total remains level, which keeps insurance costs lower. Under Option B (increasing), the death benefit equals the face amount plus the accumulated cash value, so the total grows as cash value builds, at a higher cost. Choosing between them depends on whether the client prioritizes a lower cost (Option A) or a growing benefit (Option B).
Variable and Variable Universal Life
Variable life and variable universal life (VUL) let the policyowner direct the cash value into separate account sub-accounts (similar to mutual funds). This creates the potential for higher growth but also investment risk: the cash value, and part of the death benefit, can rise or fall with market performance, though most policies guarantee a minimum death benefit. Because the cash value is invested in securities, these products are regulated as both insurance and securities, and the producer must hold a life insurance license and a securities registration (FINRA) and deliver a prospectus. VUL adds the premium and death-benefit flexibility of universal life to the investment choice of variable life.