8.1 Basic Types of Life Insurance

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

8.1 Basic Types of Life Insurance

There are numerous life insurance products in today's marketplace. The types of life insurance fall within several broad categories, although this is somewhat misleading because there are many variations in products within each category. Only the general characteristics of the basic types of life insurance are considered here. Two excellent ABA resources are H. Skipper et al., The Advisor's Guide to Life Insurance (ABA, 2011); and L. Brody et al., Federal Gift, Estate and Generation Skipping Transfer Taxation of Life Insurance (3d ed.; ABA, 2012).

8.11 Term Life Insurance

Term life insurance, as its name implies, is life insurance written for a specific term. Examples are term policies written for a 10-year term to cover life insurance needs for a limited period of time or decreasing-term policies intended to pay for a home mortgage or other debt if the insured dies before the debt has been paid.

Term insurance provides only death benefits and no buildup of cash value. Therefore, the premiums are lower in earlier years when the probability of death is less, but the premiums increase with the insured's age. Because of this feature, term life insurance often becomes too expensive to continue as the insured becomes older. Often the need for life insurance has not decreased in the later years of life, as is often expected when initial low-cost term insurance is first...