Term, whole, universal, and variable life policy classes

Four classes, three questions

Compare life policies by duration, premium structure, and who bears investment risk. Contract terms govern particular guarantees and options; permanent coverage must be maintained under the policy's funding requirements.

Term life covers a specified period and ordinarily has no cash value. Level term keeps the death benefit level during the term; decreasing term reduces it on a schedule. Level benefits do not necessarily mean level premiums. Renewable term permits renewal without new evidence of insurability under the renewal provision, usually at a higher attained-age premium. Convertible term permits exchange for an eligible permanent policy without new evidence of insurability within the conversion period. Neither feature means coverage continues indefinitely at its original price.

Traditional whole life provides permanent protection with scheduled premiums, a guaranteed death benefit, and guaranteed cash values. Ordinary whole life generally uses level premiums payable for life; limited-pay whole life finishes premium payments earlier while protection continues. The insurer bears the investment risk behind the contractual guarantees. Participating policy dividends are not guaranteed.

Universal life combines flexible premiums and an adjustable death benefit with an account value. Premiums, interest credits, mortality charges, and expenses affect that value. Fixed universal life credits interest subject to contractual guarantees rather than passing separate-account investment performance directly to the owner. Flexibility does not make insurance charges disappear: inadequate funding can cause lapse. Under a level death-benefit option, account growth generally reduces the net amount at risk. Under an increasing option, the death benefit generally combines a specified amount with account value.

Variable life uses separate-account investment choices. The owner bears investment risk, and cash value fluctuates. Traditional variable whole life generally has scheduled premiums and a minimum death-benefit guarantee when required premiums are paid, while additional benefits may vary. Variable universal life combines separate-account investing with universal life's premium and death-benefit flexibility. Do not infer a guaranteed cash value or a universal minimum death-benefit promise from the word variable.

A temporary income-replacement need points toward term; a preference for scheduled guarantees points toward whole life. Flexible funding points toward universal life. Acceptance of separate-account investment risk distinguishes variable products. California Insurance Code section 10506, subdivision (i), requires variable contracts to explain how variable benefits are determined and identify their variable basis. In California, sections 1758.1 and 1758.3 require variable authority and the associated securities registration. These requirements reflect the investment component without changing the basic product distinctions.