The Radical Guide to Life Insurance: Four main types of permanent life insurance

The four main types of permanent coverage are whole life, universal life, variable life, and variable universal life.

Whole life and universal life insurance. Whole life and universal life insurance provide coverage and protection for as long as you pay your policy premiums. Not only do your beneficiaries receive a death benefit upon your passing but you have an opportunity to grow your cash in a tax deferred investment account. The growth of the cash value portion of your policy is based on the investment performance that your insurance company generates.

How is universal life different from whole life insurance? Universal life differs from whole life in that it offers consumers the opportunity to change the size of premium payments and death benefits during the life of the policy. This can be especially appealing to those who have more children after buying a policy and want to assure that their increased costs are covered.

If you choose universal life, consider locking in a conservative rate of interest so that you don't run into trouble if interests rate fall dramatically and your premium payments suddenly increase.

Variable life insurance and variable universal life insurance. Variable life and variable universal life insurance provide coverage and protection for as long as you pay the policy premiums that remain level over time. Not only do your beneficiaries receive a death benefit but you have the opportunity to grow your cash in a tax deferred investment account.

These policies allow the holder to manage the cash value portion of the policy. However, you are generally confined to investing in stocks, bonds, and money market funds. Unlike other cash value accounts, your returns are not guaranteed. These policies are best suited for experienced investors.

An added benefit to the variable universal life policy is that it offers the policy-holder the opportunity to change the size of the premium payments and death benefits at any time. Again, this luxury is especially appealing to those who buy a permanent life policy and later welcome another child to the family. The arrival of a new member of the family can force you to re-evaluate your insurance needs.

Note: These cash value policies also have a number of important features including allowing you to close the policy and recover the cash value portion at any time, allowing you to take out a loan against the cash value portion, and allowing you to avoid paying premiums for a period of time while the cash value funds those costs.

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