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  • What are the types of permanent (cash value) life insurance?
  • July 8, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    The metaphor of a barrel rolling down a hill is a basic portrayal of how a cash value life insurance policy works.

    Whenever premiums are paid into the policy, either on an annual, semi-annual, or monthly basis, this increases the level of “water” in the “barrel.”

    Every month, the insurance company will turn the spigot and take out their expenses (EXP) and the mortality charges (cost of insurance/COI). If there is not enough “water” in the “barrel”, the policy will lapse (terminate).

    The remaining “water” in the “barrel” is the accumulated value. Subtract the surrender fees and this is your surrender value.

    The barrel metaphor is an easy way to explain how a cash value life insurance policy works. There are many types of permanent life insurance, including:

    Adaptable or Adjustable Life

    A type of insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy, and lengthen or shorten the protection period.


    Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.

    Equity Indexed Universal Life

    This policy allows policyholders to tie accumulation values to a stock market index. Typically, they contain a minimum guaranteed fixed interest rate component along with the indexed account option.

    Joint or Survivorship Life

    Covers the lives of two people and pay benefits when the second person dies. Couples often use it to fund estate tax liability.

    Limited Pay

    A type of whole life insurance in which premiums are payable for a specific number of years or until death, if death occurs before the end of the specified period.

    Universal Life

    A flexible premium life insurance policy, which allows the policyholder to change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments.

    Premiums are credited to a policy account from which mortality charges are deducted and to which interest is credited at a rate that may change from time to time.

    Variable Life

    A policy in which the death benefit and/or cash values vary (the death benefit is guaranteed to be at least as large as the initial face amount) reflecting the investment experience of a separate pool(s) of assets supporting the reserves.

    Variable Universal Life

    Similar to universal life in that the policy owner chooses the premium to be paid each period, and has the option to increase or decrease the policy death benefit. However, the assets supporting the policy are maintained in one or more separate accounts, and the policy owner’s value fluctuate, but no guarantees.

    Whole, Ordinary, and/or Straight Life

    Whenever the insured passes away, the death benefit will be rewarded to the beneficiary. Premiums may be payable for a specified number of years (limited payment life) or for life (straight life).

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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