whole life insurance policy requiring one premium payment. Since this large, up-front payment begins accumulating cash value immediately, the policy holder will earn more than holders of policies paid up in installments. With its tax-free appreciation (assuming it remains in force); low or no net-cost; tax-free access to funds through policy loan; and tax-free proceeds to beneficiaries, this type of policy emerged as a popular tax shelter under the tax reform act of 1986.

combination of whole life and level term that provides income to a beneficiary for a selected period of time (e.g., 20 years) if an insured dies during that period. At the end of the income-paying period the beneficiary also receives the entire face amount of the policy. If an insured dies after the end of the selected period, the beneficiary receives only the face value of the policy. The remainder of the benefits are the same as under the family income policy.

contract combining whole life and decreasing term insurance. A monthly income is paid to a beneficiary if an insured dies during a specific period. At the end of that period, the full face amount of the policy is also paid to the beneficiary. It is designed to provide income for a household while the children are still young. If an insured dies after the specified period, only the face amount of the policy is paid. For example, the face value of a family income policy is $100,000 and the specified period is 20 years. If the insured dies 10 years into the specified period, the beneficiary receives a monthly income of 1% of the face amount ($1000) for the remaining 10 years. At the end of the 10 years, the beneficiary also receives $100,000. If the insured dies after the 20-year specified period, the beneficiary receives $100,000, which is the face amount.

innovation in life insurance that allows policyholders to invest the cash value of the policy in stock, bond, or money market portfolios. Investors can elect to move from one portfolio to another or rely on the company's professional money managers to make such decisions for them. As in whole life insurance, the annual premium is fixed, but part of it is earmarked for the investment portfolio. The policyholder bears the risk of securities investments, meaning that cash values and death benefits will rise if the underlying investments do well and fall if the investments drop in value. Some insurance companies guarantee a minimum death benefit for an extra premium. When portfolio investments rise substantially, policyholders can use a portion of the increased cash value to buy additional insurance coverage. Policyholders can borrow against the accumulated cash value or cash in the policy. As in an Individual Retirement Arrangement, earnings from variable life policies are tax deferred until distributed. Income is then taxed only to the extent it exceeds the total premiums paid into the policy. Death benefits are not taxed as individual income but as taxable estate income, which carries an exclusion of $2 million, rising to $3.5 million in 2009.

Variable life insurance is different from universal life insurance. Universal life allows policyholders to increase or decrease premiums and change the death benefit. It also accrues interest at market-related rates on premiums over and above insurance charges and expenses.

form of life insurance where the face value is paid out to the insured or a beneficiary after a specified contract period. For example, an endowment policy that provides benefits for 20 years until the insured is 65, pays its face value after 20 years whether the insured lives or dies.

life insurance that gives a policyholder power to change the face amount, premium, coverage period, or other features of the policy.

form of life insurance, first marketed in the early 1980s, that combines the low-cost protection of term life insurance with a savings portion, which is invested in a tax-deferred account earning money-market rates of interest. The policy is flexible; that is, as age and income change, a policyholder can increase or decrease premium payments and coverage, or shift a certain portion of premiums into the savings account, without additional sales charges or complications. A new form of the policy; called universal variable life insurance, combines the flexibility of universal life with the growth potential of variable life.

attachment of decreasing term life insurance to an ordinary life policy to provide monthly income to a beneficiary if death occurs during a specified period. If the insured dies after the specified period, only the face value is paid to the beneficiary since the decreasing term insurance has expired.

type of policy with premiums that are fully paid up within a stated period. For example, a 20- payment life insurance policy has 20 annual premium payments, with no further premiums to be paid.