Life insurance falls into two overall categories. The first is Term Insurance, which offers lower premiums and protection for a limited time period. The second is Permanent Insurance, which requires higher premiums and offers cash values and death benefit protection that can continue throughout the insured’s lifetime. Guarantees, coverage periods, features and riders vary widely among all policies. The variation is greatest among permanent policies.
The cash values of General Account (non-variable) policies are associated with an underlying fixed income portfolio of assets selected by the insurance company (generally bonds and mortgages). The cash values of Separate Account (or variable) policies are allocated by the policy-owner among sub-accounts, which can focus on equity or fixed income investments. Many factors, such as expenses and mortality experience, substantially impact the performance of all permanent life insurance policies.
Among permanent products, Universal Life (UL) provides flexible premiums with relatively minimal guarantees. In some cases, UL policies offer supplemental guarantees, which can guarantee death benefit protection even after cash values expire. Adjustable Life policies offer varying guarantees based on the premium level. Whole life policies provide lifetime guarantees for higher premiums. Whole life premiums can be reduced by blending the whole life policy with a term rider or by using a modified premium structure (blended premiums). In either approach, some level of guarantee is sacrificed to obtain lower premiums.
Due to this wide variance in structure, options, riders, guarantees and assumptions, a premium or illustration comparison alone could be an inadequate and potentially misleading basis for comparison of life insurance policies.