Life insurance comes in many flavors, but they all descend from two basic ideas: temporary protection (term) and permanent protection (whole life and its modern cousins). This guide breaks down each major policy type—what it does, how the premium and cash value behave, and who it suits—plus the special-purpose policies (group, credit, joint, and survivorship) the exam expects you to recognize. Knowing the trade-offs is the key to answering most questions correctly.

The big picture: temporary vs. permanent

• Term insurance is pure protection for a limited time. It builds no cash value and is the least expensive way to buy a given amount of death benefit. If you outlive the term, coverage simply ends.
• Permanent insurance covers you for your entire life (as long as premiums are paid) and builds cash value—a living benefit you can borrow against or surrender for cash.

Term insurance

Term policies pay the death benefit only if the insured dies during the policy term. Common designs:

• Level term – The face amount (death benefit) stays the same for the whole term, and the premium is typically level. The most common type.
• Decreasing term – The death benefit declines over time while the premium stays level. Often used to cover a shrinking debt like a mortgage (sometimes called mortgage protection).
• Increasing term – The death benefit grows over time; frequently seen inside riders (like return-of-premium or some accidental death features).
• Annual Renewable Term (ART) – One-year coverage that renews each year. The face amount stays level, but the premium rises each year with the insured's age.

Two valuable term features to memorize:

• Renewable – Lets the owner renew the policy for another term without proving insurability (no new medical exam). The premium increases at renewal to reflect the older age.
• Convertible – Lets the owner convert the term policy to a permanent policy without evidence of insurability. When converting, the new permanent premium is based either on the insured's attained age (current age) or original age (usually requires paying the difference in past premiums).

Whole life insurance

Whole life is the classic permanent policy. It provides lifetime protection, a level premium, a guaranteed death benefit, and guaranteed cash value that grows on a set schedule. The policy is designed to endow (cash value equals the face amount) at a specified age, traditionally age 100 (newer mortality tables use 121).

Premium-payment variations:

• Continuous premium (straight/ordinary whole life) – Premiums are paid for the insured's whole life. Lowest premium of the whole life options.
• Limited-pay whole life – Premiums are paid for a set period (e.g., 20-pay or paid-up at 65), after which the policy is paid up but stays in force for life. Higher premiums because they're squeezed into fewer years.
• Single-premium whole life – One large lump-sum premium fully funds the policy at issue. Builds immediate cash value (and is often a MEC—see tax guide).

Universal life (UL)

Universal life is flexible permanent insurance that "unbundles" the policy into its parts: a cash value account, a cost of insurance (COI) charge, and expense charges. Its hallmark is flexibility:

• Flexible premiums – Within limits, the owner can pay more, less, or skip a payment if the cash value can cover the monthly charges.
• Adjustable death benefit – Two options:
  • Option A (Level) – Death benefit stays level; cash value grows inside it.
  • Option B (Increasing) – Death benefit equals the face amount plus the accumulated cash value, so it increases over time (costs more).
• The cash value earns a current interest rate but is protected by a guaranteed minimum rate.
• Watch out: if the cash value runs too low to cover monthly charges and the owner doesn't pay more, the policy can lapse.

Variable life and variable universal life

These tie cash value to investments, so values can go up and down. Selling them requires a securities (FINRA) registration in addition to a life license, because they are regulated as securities.

• Variable life (VL) – Fixed premium permanent policy where the cash value (and often death benefit above a guaranteed minimum) is invested in separate account subaccounts (like mutual funds) chosen by the owner. There is a guaranteed minimum death benefit, but cash value is not guaranteed.
• Variable universal life (VUL) – Combines UL's flexible premiums and adjustable death benefit with VL's investment subaccounts. Maximum flexibility and maximum risk—there is typically no guaranteed cash value, and poor investment performance can erode the policy.

Indexed universal life (IUL)

Indexed UL is a universal life policy whose cash-value interest is tied to the performance of a market index (such as the S&P 500), rather than a declared rate or direct investments.

• Gains are linked to the index but usually limited by a cap (maximum credited rate) and supported by a floor (often 0%), so the cash value doesn't lose value due to market drops.
• A participation rate determines what percentage of the index's gain is credited.
• Because the cash value isn't directly invested in securities, an IUL generally does not require a securities license to sell (unlike VL/VUL).

Endowment policies

An endowment builds cash value rapidly and endows (pays the face amount to the living insured) at a specified date or age—for example, "20-year endowment" or "endowment at 65." If the insured dies before then, the beneficiary receives the face amount. Because of their fast cash growth, modern endowments often fail federal tax tests and may not qualify for favorable life insurance tax treatment, so they're less common today.

Special-use and combination policies

Group life insurance

Group life covers many people under a single master contract issued to an employer or association; individuals receive a certificate of insurance, not their own policy.

• Usually annual renewable term, often non-contributory (employer pays) or contributory (employee shares cost).
• Underwriting is on the group as a whole, so individuals typically need little or no evidence of insurability.
• A conversion privilege lets a departing employee convert to an individual permanent policy without proving insurability (within a set window).

Credit life insurance

Credit life is a form of (usually decreasing) term insurance designed to pay off a loan if the borrower dies. The creditor/lender is the beneficiary, and coverage cannot exceed the outstanding debt. It's commonly sold with auto loans, mortgages, and installment purchases.

Common exam traps

• Decreasing term has a falling death benefit with a level premium, while ART has a level death benefit with a rising premium. Don't mix them.
• Renewable = renew without proving insurability; Convertible = switch to permanent without proving insurability. Two different rights.
• UL Option A is level; Option B is increasing (face + cash value).
• Variable products require a securities license; indexed UL generally does not.
• Survivorship (second-to-die) pays at the LAST death—a favorite for estate planning—while joint (first-to-die) pays at the FIRST death.
• In group insurance, the employer holds the master policy and employees get certificates; underwriting looks at the group, not each person.

Quick recap

• Term is temporary, low-cost, and has no cash value; permanent lasts a lifetime and builds cash value.
• Term varieties include level, decreasing, increasing, and ART, with valuable renewable and convertible features.
• Whole life offers guarantees and comes as continuous, limited-pay, or single-premium.
• Universal life adds premium and death-benefit flexibility (Option A level vs. Option B increasing).
• Variable and VUL invest in separate accounts (securities license required); indexed UL ties growth to an index with a cap and floor.
• Know the special policies: joint (first-to-die), survivorship (second-to-die), endowment, group (master/certificate), and credit life (creditor is beneficiary).