Define three types of life insurance

What will be an ideal response?

Answer: There are three kinds of life insurance: term life insurance, whole life insurance, and universal life insurance. Term life insurance, the most common type offered by companies, provides protection to employees' beneficiaries only during a limited period based on a specified number of years (e.g., 5 years) subject to a maximum age (e.g., 65 or 70). After that, the insurance automatically expires. Neither the employee nor beneficiary receives any benefit upon expiration. In order to continue coverage under a term life plan, an employee must renew the policy and make premium payments while younger than the maximum allowed age for coverage.

Whole life insurance pays an amount to the designated beneficiaries, but unlike term policies, whole life plans do not terminate until payment is made to beneficiaries. As a result, whole life insurance policies are substantially more expensive than term life policies, making the whole life insurance approach an uncommon feature of employer-sponsored insurance programs. From the employee's or beneficiary's perspective, whole life insurance policies combine insurance protection with a savings (or cash accumulation plan) because a portion of the money paid to meet the policy's premium will be available in the future with a low fixed annual interest rate of usually no more than 2 or 3 percent.

Universal life insurance provides protection to employees' beneficiaries based on the insurance feature of term life insurance and a more flexible savings or cash accumulation plan than found in whole life insurance plans.