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2012 Military Times Insurance Guide: A look at the types of life insurance

Jan. 21, 2012 - 11:58AM   |   Last Updated: Jan. 21, 2012 - 11:58AM  |  
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Know what you're getting when you buy a life insurance policy. Some give coverage for a specific number of years — a "term" — such as Servicemembers' Group Life Insurance, which covers you while you are in the military. Some policies combine different types of coverage. Some cover you for your entire life and may allow you to build up cash value.

The basic types of life insurance:

Term. This type of coverage is for a specific amount of time, generally has lower premiums in the early years and doesn't build up cash value. It's typically less expensive than permanent insurance and is often used by people in periods of the greatest need to replace their income if they died — for example, when children are young, to pay for a child's college education, or to pay off a mortgage or other debt.

These policies pay out only if you die within the specified term. Most allow you to renew for one or more terms even if your health has changed, though your premiums may increase. Some policies keep their payout level over the entire term, while others decrease the potential payout over the term.

Permanent. These policies include whole life, universal life and variable universal life. They are generally more expensive because they cover longer time periods.

Whole life policies offer a fixed premium, guaranteed annual cash value growth and a guaranteed death benefit. These policies are for when you want insurance for as long as you live. Make sure you can afford the premiums; if you don't intend to keep these policies for the long term, they may not be right for you.

Universal life insurance is a more flexible version of permanent insurance that lets you later increase or decrease the death benefit as your needs change. It also offers a cash value component that increases over time and lets you change your premium payments after cash has built up.

Variable life insurance allows you to allocate the policy's cash value across stocks, bonds or money market accounts.

Variable universal life is a combination of variable and universal life insurance that allows you to vary premium payments, investments and coverage amounts.

Some people choose to mix and match different types of policies, such as a smaller permanent policy for long-term protection with a premium they know they can afford, combined with a larger-term policy that covers big financial needs that may not exist in later years.

The National Association of Insurance Commissioners advises consumers to consult financial or tax advisers to determine which, if any, type of permanent life insurance fits their needs.

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