Defining Life Insurance

Ramsey County

Making $ense of Dollars and Cents

June 19, 2006

Though the variety of life insurance products seems endless, they can be grouped into one of four basic types.

Term – so called as it covers policyholders for a fixed span of time. It costs much less than whole life policies, except for the very elderly. The two types of term insurance – level and annual renewable – have different features and different premium rates. Level term premiums stay the same throughout the life of the policy, while annual renewable term insurance has premiums that increase as you age.

Whole – Whole life combines term insurance with an investment component. A whole life policy has two parts – the part of the premium that pays for the insurance coverage and an investment component that earns interest. As you age, the portion that goes into the reserve decreases while the portion that pays for the insurance coverage increases.

Universal - Universal also combines insurance with savings. If you contribute enough to the savings fund portion in the policy’s early years, it can generate enough income to pay your premium in later years. However, if you skimp on premiums in the policy’s early years, you can be responsible for higher charges later on.

Variable – Variable-life insurance combines an insurance feature with a savings vehicle that you choose from among a number of alternatives offered by the company. The savings vehicle is usually one of several investment portfolios that are structure like mutual funds. Variable life policies may have a fixed or variable premium. The return rate on variable policies fluctuates more in time with the stock market than other policies, which can be great if the markets are high but can also be disastrous if markets take a downturn.

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524 4th Ave NE #5, 2nd Floor Ramsey County Courthouse
Devils Lake ND 58301
701-662-7027
email - ramsey@ndsuext.nodak.edu