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Buying a life insurance policy can be quite confusing as there are many different options you can choose from. Most policies offer riders, extras and add-ons that allow the insured to alter their policy to fit their exact needs however when it comes down to it, there are three types of life insurance that serve as the foundation to your policy and you will have to choose one: term life, whole life and universal life.

Term Life Insurance

A term life policy is the easiest of the three to understand. Basically you select how long you want coverage for. This represents the term. Typically, terms are 10, 20 or 30 years in length. Once you determine the term you choose how much coverage you want. Larger death benefits will cost more but term life insurance is usually the least expensive form of life insurance you can buy.

While a term life insurance policy looks good from a cost perspective, it does have a downside. Eventually, the term will expire and if the insured is still alive at the end of the term there is no benefit paid out. However some term life policies will allow the insured to renew the policy or convert it without the need for an additional medical evaluation.

Whole Life Insurance

Whole life is a permanent life insurance policy. Unlike term life insurance, whole life will cover the insured until they die as long as the premiums are paid. Whole life offers the insured the benefit of paying the same premium throughout the length of the policy so if a person were to purchase a whole life policy at a young age and they are healthy, they could secure a low premium for the rest of their life. Whole life policies also have a guaranteed cash value accumulation.

With whole life policies, will guarantee a minimum payment but any interested and savings are not disclosed until the benefit is paid. Also, administrative costs and operating expenses are not disclosed and the board of directors decides on what they will pay for this.

Universal Life Insurance

A universal life insurance policy is also a permanent policy however it offers the insured greater flexibility than a whole life policy does. Universal policies allow for flexibility in terms of premium payments, death benefits and how the policy is used as an investment.

Universal life policies were created so that people could buy something similar to a term life insurance policy in that they will pay a guaranteed benefit, however unlike a whole life policy all administrative costs and charges are disclosed and the policy owner has the option to decide where monies are invested.

Jeff Orloff writes on term life insurance topics for the Consumer Media Network’s Term Life Insurance Blog.