Types of Life Insurance Policies

  • Term Life  is coverage for a specific period of time or term. (most purchased type)
  • Permanent Life is coverage for a life time.
  • Non-Medical is coverage that can be purchased without a medical exam.
  • Buy-Sell Agreements are policies that protect the business against the loss of a key-person.
  • Accidental Death is coverage that pays out if the insured dies in an accident.
  • Life Insurance Riders can be added onto life insurance policies to either increase or decrease the benefits. Riders give the policy owner the ability to customize their policy.

Descriptions, Advantages & Disadvantages of Each Policy

Ins. PolicyTerm Life Insurance

Typically the most affordable type and the simplest form of life insurance, also the most common. Term Life insurance is a policy that is guaranteed coverage for a specific amount of time. You pay life insurance premiums for the length of the term, usually 5, 10, 15, 20, 25 or 30 years, and if you pass away during the term, your beneficiaries receive the death benefits. After the term, the insured can obtain another term policy, but the previous premium rates are no longer guaranteed. The premiums typically increase as the insured gets older.


  • Good option if you want to cover specific financial responsibilities that fall under a specific time frame like a mortgage payment or future college education
  • Provided their health is good, most people in their thirties, forties and fifties can get hundreds of thousands of dollars’ worth of Term Life Insurance for one to three dollars a day.
  • The low monthly premium is guaranteed for the life of the Term
  • As your coverage needs change, so can your policy. This makes Term Life flexible. Buying or Refinancing a home or having a child? You can always increase your coverage amount. Are your kids out of college? It's time to decrease the face amount, this can usually be done by completing a few forms.


  • Continuing your coverage after your term period is up...... your options are to extend your current policy, apply for a new policy, or conversion to a permanent policy, all options however come with a significantly increased premium.
  • At the end of the term, most term policies convert to Annual Renewable Term (ART) which has your premium increase annually

Types of Term Life Policies

  • Level Term - Guarantees a fixed time or term period and a level/fixed coverage amount. The premiums do not change during the term.
  • Decreasing Term - Coverage that decreases in value over time. Premium typically stays the same.
  • Return of Premium (ROP) Term - Returns most or all of the premiums back if the insured is still living at the end of the term. (increasing in popularity)

**Convertibility & Renewability - Most term policies have these features but some do not. Renewability is a feature that automatically renews at the end of the term in 1 or 5 year increments without evidence of insurability. Meaning that the price increases each year annually or every 5 years after the initial term has expired. Convertibility is a feature that gives the insured the option to convert their term policy into a permanent policy without evidence of insurability.

Family in Grass

Permanent Life Insurance

An umbrella word for life insurance plans that do not expire and combine a death benefit with a savings portion. This savings portion can build a cash value - against which the policy owner can borrow funds, or withdraw the cash value to help meet future goals or pay emergency based expenses. The two main types of permanent life insurance are whole and universal life insurance policies.


  • The cash value in permanent insurance accumulates tax deferred. As long as the policy remains in force, you can withdraw the money from a permanent policy without being taxed. The only other vehicle that both accumulates tax-deferred and allows tax-free withdrawals is a Roth IRA. As of  February 2014, an individual can only contribute $5,500 ($6,500 if you are 50 or older) per year into a Roth IRA, making permanent life insurance a great vehicle to put as much cash into as you want.
  • There are also no restrictions or tax-penalties for withdrawing the money early. You could take out money after the first year without any penalty, as long as you left enough cash to keep the contract in force.
  • You can convert the cash in the policy into another permanent policy or into an annuity.
  • Many people lack the self-discipline to save. The policy forces savings. Paying the premiums means making regular contributions to the savings element of the contract.


  • Permanent life insurance is designed to be a lifelong commitment. You can always cancel or surrender the policy, but most contracts have hefty surrender penalties if you decide get out before the surrender period expires, which is usually more than 10 years and less than 20. In addition, at the time the policy is surrendered, the excess of the cash surrender value over the premiums paid is taxable as ordinary income.
  • Since you are also buying life insurance, it is reasonable to assume a good chunk of the cash deposited in a permanent plan will go towards the cost of the insurance. Permanent plan charges can be steep, but most have guaranteed maximum charges that are required by law to be illustrated to the consumer before purchase. These charges include: mortality, administrative expenses, surrender charge, policy fees, state premium tax, premium fees and withdrawal charges.

Types of Permanent Life Policies

  • Whole Life (WL) - a policy that is good for the entire life of the policyholder, offers a death benefit, accrues a cash-value and usually pays dividends. The premiums in these policies do not change.
  • Universal Life (UL) - a policy that takes the excess of premium payments above the current cost of insurance is credited to the cash value of the policy. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, as well as any other policy charges and fees which are drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer, but has a contractual minimum rate of 2%. Its adjustable life insurance, separates the death benefit, premium and cash-value so the insured is able to make changes to any of the three elements. These policies usually pay dividends.
  • Variable Life (VL) - these policies allow the insured to invest a portion of the cash-value into stocks, bonds or other investment ventures at their own risk. These policies offer a death benefit and usually pay dividends.
  • Variable Universal Life (VUL) - a policy that builds cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, stocks, bonds or other ventures, and the choice of which of the available separate accounts to use is entirely up to the contract owner, which is the 'variable' component. The 'universal' component in the name refers to the flexibility the owner has in making premium payments. The premiums can vary from nothing in a given month up to maximums defined by the Internal Revenue Code for life insurance. These policies usually pay dividends.
  • Survivorship Life (Second-to-Die) -covers a husband and wife and pays the benefits when the second person dies. This option is attractive to wealthy individuals because the estate tax would be paid with insurance money. These policies also accrue a cash-value and sometimes pay dividends like a whole life policy. Some policies even separate the death benefit, premium and cash value so the insured is able to make changes to any of the three elements, just like a universal life insurance policy.

You Should Buy Term Life Insurance If You:

  • Only need coverage for a specific period of time, - like a house mortgage or until your children are independent.
  • Need a lot of coverage and can't afford permanent.
  • Have low cash flow - if you're living paycheck to paycheck and don't think you can keep up with the permanent payments, triggering surrender charges.
  • Have other investments and are committed and self-disciplined to make regular deposits.
  • Don't want the commitment required from permanent insurance.
You Should Buy Permanent Life Insurance If You:
  • Have a high net worth and are seeking a tax-advantaged investment.
  • Don't want to risk outliving your term and having nothing to show for it.
  • Understand that permanent insurance is a long-term commitment.
  • Want forced savings.
  • Want guaranteed life insurance for life.
  • Need insurance for estate planning purposes.

Family Signing
Non-Medical Life Insurance

Non-Medical life insurance policies do not require a medical exam, blood draw or urine specimen. For years and years insurance companies asses insurability by several factors, one of these factors being medical exams. Agents will provide a premium estimate but ultimately the insurance companies' underwriter determines an approval and the final rates/premiums which boils down to health and life expectancy. Medical exams are a major factor with underwriting. Typically a nurse comes out to the applicant to perform the exam at their home or workplace. But when applying for a non-medical life insurance policy, a consumer can side step the exam component completely and obtain a policy more easily. Often the process can be done over the phone and with a computer. *Non-Medical policies are mainly available to Term & Whole Life policies.*


  • Individuals who would not ordinarily be able to purchase life insurance due to health issues could potentially get coverage.
  • Non-Medical policies are also faster to obtain because many of them do not have to go through the traditional underwriting process.
  • Not doing the exam is inherently quicker. The convenience may appeal to people who need a policy as soon as possible. Such instances are divorce settlements, consumers who travel allot, individuals that aren't sure what their health is like.


  • Non-medical policies typically have higher premiums. They also tend to have lower coverage amounts between $50,000 and $500,000.
  • Some Non-Medical policies are not convertible or renewable

HandshakeBuy-Sell Agreements Life Insurance

If you own all or part of a business—any business—you should know about buy-sell agreements.  Unless you plan to be lucky forever, you’d better have one.  Without it, a closely held or family business faces a world of financial and tax problems on an owner’s death, incapacitation, divorce, bankruptcy, sale or retirement. Buy-sell agreements are life insurance policies used to shield businesses against the death of key-players such as partners and stakeholders. If a key-player dies, the benefits would be used to purchase the deceased owner’s holdings in the business or cash-out their heir(s) or estate.


  • The cost of a buy-sell is tiny compared to its benefits.  A buy-sell agreement can ward off infighting by family members, co-owners and spouses, keeps the business afloat so its goodwill and customer base remain intact, and avoid liquidity problems that often arise on these major events.


  • One must also analyze the potential drawbacks of a buy-sell agreement. Business owners should consider the cost of insurance and the potential use of premium payments for other company or personal purposes.
  • A buy-sell agreement may adversely affect the use of family limited partnerships or similar tools that create valuation discounts. Business owners may also find that a better price can be obtained for the company if it is sold during the lifetime of a key owner rather than after his or her death.

Accidental Accidental Death Life Insurance

A form of life insurance that pays benefits to the beneficiary in the event that the insured dies by cause of an accident. This type of life insurance is generally the least expensive of all life insurance. If you have a need for life insurance – even if you don't qualify for it, Accidental Death coverage can help. Accidental Death insurance offers guaranteed coverage for ages 18 – 70 and up to $1,000,000 in coverage, regardless of any other insurance you currently own.


  • Accidental Death is the # 1 killer in people under age 45 in the U.S. Making a accidental death a smart choice for low cost life insurance
  • Most carriers cover airlines, trains, buses, taxies, ferries and other common public transportation. Being a passenger or driver in a vehicle, or pedestrian on the street, falls, drowning, poisoning, electrocution and all other types of fatal accidents that occur any time of the day – in your own home, at work or wherever you are.


  • Death by illness, suicide, war injury, and natural causes are generally not covered.
  • Similarly, some carriers will not cover death while under the influence of any non-prescribed drugs or alcohol, also an overdose with toxic or poisonous substances.

Insurance Contract

Life Insurance Riders

Riders are special additions to the policy provisions that offer benefits not found in the original contract, or that make adjustments to it. These special provisions are, in effect, attached to the policy. Riders are not necessarily found in all policies. Because all riders provide some kind of benefit to the policy owner, an extra premium may be charged for them. Essentially riders can be added onto life insurance policies to either increase or decrease the benefits. Riders give the proposed insured the ability to customize their policy.


  • Riders provide greater flexibility and more coverage
  • Riders can give policyholders additional benefits and increase peace of mind that if something goes wrong, there's a Plan B.


  • Riders can sometimes confuse the novice life insurance shopper, but there are no serious drawbacks.
  • Riders vary by insurance company and policy, as do the rules for how they work. Costs also vary and depend on many factors, including your age, health and type of policy.

Types of Riders

  • Child Life Insurance A child life insurance rider enables a parent or legal guardian to add life insurance for their child onto their personal life insurance policy. No one wants to consider the possibility of losing a child, so all emotion must be set aside when considering a child protection rider. Although the death of a child typically would not result in income loss, as would the death of a spouse, the tragedy still would have some financial consequences, which could be an additional hardship for a bereaved family. Child Rider coverage ranges between $5,000 - $30,000.
  • Accelerated Death Benefit - An accelerated death benefit rider allows the insured to use some of the death benefit while they are still alive to pay for healthcare expenses if they become terminally ill or need long-term care. This has become standard in the insurance industry, and is usually included automatically for free or offered at nominal cost. The policy spells out how much of the death benefit is available before death. Usually it's capped at $250,000 to $700,000
  • Accidental Death Benefit - If you die from an accident, this rider provides an additional benefit on top of the policy's regular death benefit. Accidents are defined differently depending on the policy, but they generally exclude accidents resulting from dangerous hobbies, illegal activities, acts of war and suicide.
  • Waiver of Premium - A waiver of premium rider provides the insured with additional disability protection. If the insured becomes disabled for 6 months or longer, the insured would not be responsible for the premiums while they are disabled. If the insured becomes permanently disabled and can't work then premiums are waived entirely.

There is no one-size-fits-all answer to whether any of these riders are right for you. You'll need to weigh policy options to find the best package for your needs.

"Our best advice is to talk to a knowledgeable life insurance agent to help make an informed decision"

 Call our office at 800-581-3130 to get your questions answered.


The Ripley Group

P.O. Box 516

South Cle Elum, WA 98943