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What
are the different types of permanent policies?
- Whole or ordinary life
This is the most common type of permanent insurance
policy. It offers a death benefit along with a savings
account. If you pick this type of life insurance policy,
you are agreeing to pay a certain amount in premiums on
a regular basis for a specific death benefit. The
savings element would grow based on dividends the
company pays to you.
- Universal or adjustable life
This type of policy offers you more flexibility than
whole life insurance. You may be able to increase the
death benefit, if you pass a medical examination. The
savings vehicle (called a cash value account) generally
earns a money market rate of interest. After money has
accumulated in your account, you will also have the
option of altering your premium payments – providing
there is enough money in your account to cover the
costs. This can be a useful feature if your economic
situation has suddenly changed. However, you would need
to keep in mind that if you stop or reduce your premiums
and the saving accumulation gets used up, the policy
might lapse and your life insurance coverage will end.
You should check with your agent before deciding not to
make premium payments for extended periods because you
might not have enough cash value to pay the monthly
charges to prevent a policy lapse.
- Variable life
This policy combines death protection with a savings
account that you can invest in stocks, bonds and money
market mutual funds. The value of your policy may grow
more quickly, but you also have more risk. If your
investments do not perform well, your cash value and
death benefit may decrease. Some policies, however,
guarantee that your death benefit will not fall below a
minimum level.
- Variable-universal life
If you purchase this type of policy, you get the
features of variable and universal life policies. You
have the investment risks and rewards characteristic of
variable life insurance, coupled with the ability to
adjust your premiums and death benefit that is
characteristic of universal life insurance.
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