Thedifferences between different life insurance policies are straightforward once explained. There are three types of life insurance: whole life, term, and guaranteed universal life. Whole life insurance remains in force as long as you pay your premiums. In addition to offering life insurance protection, you also build cash value. You “overpay” your insurance premiums, the insurance company invests the extra money, which grows over time.
Term life insurance remains in place while you pay your premiums and remains in force for a defined number of years. Typically, the policies expire at age 65 or 70. Since most people die after those ages, most term policyholders do not collect on their policies, which are designed to pay out only if the policyholder dies young. Since they do not pay out as often, term policies are cheaper than whole life policies.
Guaranteed universal life insurance companies offer a third option, GUL. GUL provides a mix of whole life and term features in that it remains in force for the rest of your life if you pay the premiums. On the other hand, it builds only a small cash value, so it is less expensive than whole life insurance. GUL policies also allow you to reduce the insurance and premiums as your needs change and to have percentages of the premiums returned to you.
