Temporary (term) insurance This type of policy provides coverage for a specific number of years in return for a predetermined premium. Temporary policy is considered to be 'pure' insurance and the amount of premium only provides coverage in the event of death, not any other events. Three main factors should be considered for term insurance: Face value – the benefit at death, also called the coverage; Premium due – the insured cost; Duration of coverage – the term. Depending on the insurance company you will be offered a various combination of these three factors. The face value may or may not remain constant and the duration (term) can be for any number of years while the premium can also fluctuate in value. Further, there are three types of term insurance – level insurance, annual renewable as well as mortgage insurance.

Level term life insurance is a long-term policy, usually issued for a round number of years, like 10, 15, 25, etc. The specifics of this type are in the fact that its premiums remain constant thus you can plan and budget long-term. In the end it might be renewable or can be converted into another type of policy. The annual renewable term is a 12 months insurance but with a guarantee from the insurance company that it will reissue a policy of equal or lesser value at the expiry of 12 months, regardless of the insurability of the policy holder and will determine the premium according to the age of the insured at the time of renewal. Mortgage life insurance is similar to the level term in that it also has a constant premium but declining face amount. The face value in this type of insurance is equal to the amount of mortgage on the insured's residence, so that in the event of the insured's death the company pays the mortgage off. Permanent life insurance This type of life insurance stays in force permanently, until the policy matures, except if the policyholder breaches its terms, for instance if he does not pay the premium at due date. This policy cannot be cancelled except if there was a fraud in the application. In contrast to the term insurance, permanent policy accumulates cash value, which means that a policy of one million dollars will be cheaper for a young person than to someone in his/her 60s.

The built up cash can be accessed by the insured at any time. Further, permanent insurance can be split into four groups – whole life insurance, universal life insurance, limited-pay and endowments. Whole life policy has a constant premium and a schedule of cash value. It guarantees death benefits, cash accumulation, fixed annual premiums, and the expenses in the event of death will not be deducted from the cash value. Universal life policy is similar to the whole life but provides more flexible premiums and a potential to achieve a higher internal rate of return. Limited pay policy provides for the premiums to be paid in specified periods of time, like 10 or 20 years. Endowments are policies in which the built up cash value equals the benefits in the event of death (the face value). This type of life insurance is considered to be a more expensive one.

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