An important component of anyone's portfolio, life insurance comes in two main types: whole life insurance and term insurance. Considered a form of permanent insurance, whole life insurance pays a single figure upon the death of the holder. Money paid into the premium goes into investments made by the insurance company. Returns on these investments grow tax deferred at a fixed amount every year, and some policies allow the holder to borrow against it during their lifetime. Additionally, the premiums do not change over time.
The more popular option among buyers, term insurance does not utilize investments. Purchasers acquire coverage for as long as they continue paying the premium, and recipients acquire the face value of the policy. Along with the total not increasing due to interest, term insurance also generally features a maximum contractual life of 30 years. Nevertheless, it remains a less costly alternative. Common types include annual renewable, which protects the payer for a year with the option to renew; level term, which features an increasing premium the longer the holder maintains the insurance; and decreasing term, which requires the same premium but with steadily lowering death benefits.