Many people are not aware of the fact that there are actually three basic types of life insurance policies. They fall under the categories of Term Life, Whole Life and Universal Life insurance policies. When looking for life insurance, it helps to understand that there is more than one type of policy that can be purchased, and while all three provide settlements to beneficiaries upon the death of the insured, only term life has no actual cash value. Following is a very basic understanding of the three major types of life insurance policies.

Term Life: This is the type of policy that most Americans hold. Based on a number of variables, premiums are specified and as long as the insured continues to pay the premiums, the policy remains in force. It is only of any value should the policy holder pass away while the policy is valid, or in force. Also, certain provisions within the policy must be met. The amount payable may vary depending on the cause of death, as set forth in the policy.

Whole Life: A whole life policy is the second most common life insurance policy in the United States, and unlike the term life policy, a whole life policy does have a cash value at some future and predetermined point in time. The actual face value is paid upon the death of the insured, but if certain conditions are met, the insured can either take a loan against the cash value of the policy, or surrender it altogether in return for its cash value at the time of surrender. Payments may also be made upon maturity of the policy in the form of annuities, or periodic payments. Many individuals choose this type of policy as a type of retirement fund.

Universal Life: In many ways, a universal life policy is like a whole life insurance policy in that it does accrue cash value. However, a universal life insurance policy is much more fluid. The insured, or policy holder, is able to vary certain aspects of the policy as the need arises. For instance, premiums can be adjusted in terms of amount and/or frequency. Also, death benefits can be adjusted along the way as well, which more than likely will reflect the amount of premiums due. Because of this fluidity, many people are beginning to opt for universal life over whole life.

When looking for life insurance, it is important to understand the difference in the types of policies available. While all three provide security for your loved ones upon your death, only whole life and universal life can be seen as an investment in your future.

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