A. There are 4 major different types of life insurance products -
Term Life
Term life is used to provide a large amount of death benefits for the lowest amount of premium. This is a great way of providing the needed amount of death benefit to cover temporary, short term needs for things like income replacement, mortgage protection, children's education expenses, etc.
Whole Life
Whole life products are typically used to provide a minimum amount of death benefit and build the most amount of cash for the purpose of withdrawing tax-free income at some point in the future. The majority of the cash value is reliant on non-guaranteed dividend payments. If all of the available premium is used for whole life, you run the risk of being under insured.
Guaranteed Universal Life
Guaranteed universal life is a great hybrid approach to providing permanent protection with a cost somewhere between term and whole life premiums. There are typically very little or no cash values associated with this type of products. The attraction is the guaranteed premium structures and permanency of the death benefits.
Indexed Universal Life
Indexed universal life plans offer a hybrid approach to pricing for death benefits and provide permanent protection. They are designed to build cash values and give a large degree of premium flexibility compared to whole life, which offers very limited premium flexibility. Similar to whole life plans, these policies can also be used to build cash value and provide tax free income. The values are usually based on either a fixed interest rate (that can be guaranteed) or on a non-guaranteed market index, such as the S&P 500.
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