As you probably know, there are two major types of insurance – term and permanent. Understanding the difference between the two and choosing the one that fits your needs is an important part of purchasing your policy. Like the name suggests, term life insurance is only good for a certain period of time, usually 10-30 years. A benefit is only paid out if the policy owner should die during the specified term. Term life insurance is typically the least expensive form of life insurance and the most widely used. While a term policy can be extended or renewed when it ends, the premiums are usually more expensive since the policy owner is now significantly older. Unlike permanent forms of life insurance, term policies have no cash value and can be viewed as insurance in the purest sense of the word

Permanent life insurance encompasses several types of Insurance, such as whole life and universal life insurance. While all forms of permanent life insurance generally follow the same principles, they differ greatly from term life insurance. Every type of permanent life insurance last for the insured individual’s entire life, as long as he or she continues paying their premiums. In addition, permanent life insurance provides a savings element into the equation, allowing the policy to build up a cash value. In most cases, the policy owner pays more into their policy than the premiums required. Over time, that money builds up and can eventually become a substantially larger benefit than those offered in term policies.

Insurance policies fall into many categories. Some of the parameters for classifying them include number of years, benefits covered, premium amount and other regulations which govern the policy. Life insurance policies may also vary from company to company. However the degree of variance is minimal and none of them will be contradictory to the principles of a life insurance contract. The two major classifications are permanent and term insurance.

Term Life Insurance:

Term Life Insurance is a types of insurance policy whereby the insured pays a fixed sum for a period of time. This sum remains constant. The premium charged is very nominal. The Policy holders normally survive even after its expiry unless they are affected by fatal disease or injured in an accident. This policy does not cost much. Once the policy expires the insured is also at liberty to renew the same but he will have to pay the revised rates of premium. Such a change could sometimes be too high. This is one of the drawbacks of this policy. But for this factor, it is economical and highly recommended for the salaried youth and middle men. Whole term insurance policy is another classification in term life insurance. In a whole term insurance the insured pays the fixed amount throughout his life.

Term insurance is usually a cheaper way of providing protection for your dependants should you die, with the monthly payments generally being a lot lower.

The policy guarantees to pay out a set amount if you die within a stated period of time (the 'term'), but doesn't pay out anything if you survive the term. The term could be, for example, the number of years left on your mortgage or the number of years until your children are financially independent.

Term insurance is sometimes called 'protection only' insurance.

Group Term Life Insurance

This types of insurance is taken by the employer for his employees. The employer either pays the premiums from his kitty or by deducting the appropriate amount from the salary of individual employees. This policy provides lot of benefits but it cannot be relied solely to meet your insurance needs. This types of insurance is gaining significance in the developing countries.

Level term Life Insurance

This types of insurance requires you to select a particular period and pay premiums for the selected period. The policy automatically matures on the attainment of the selected period. Once you select the term say 5 10 or 15 years you cannot revoke it. This types of insurance is ideal for those people who are not able to make long term financial plans.

Whole Life/Permanent

Whole life or permanent insurance pays a death benefit whenever you die—even if you live to 100! There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type.

In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the comapny keeps the premium level by charging a premium that, in the early years, is higher than what’s needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.

By law, when these “overpayments” reach a certain amount, they must be available to the policyowner as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.

In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product—universal life insurance and variable universal life insurance.