insurance

Ordinary Life Insurance

A type of permanent life insurance that combines a death benefit with a cash value savings component, featuring level premiums throughout the policyholder's lifetime. Also known as whole life insurance, it provides lifelong coverage as long as premiums are paid.

Example

“David chose ordinary life insurance over term life because he wanted permanent coverage and liked the idea of building cash value he could borrow against in the future.”

Memory Tip

Think 'ORDINARY = ONGOING' - ordinary life insurance provides ongoing, permanent coverage unlike term insurance that expires.

Why It Matters

This type of insurance serves dual purposes as both protection and savings, making it valuable for estate planning and long-term financial security. The cash value can be accessed during your lifetime for emergencies or major expenses, providing financial flexibility.

Common Misconception

Many people think ordinary life insurance is a good investment compared to other options, but the returns are typically lower than market investments. Others believe they can't afford it, not realizing that smaller policies are available and the cash value makes it partially self-funding over time.

In Practice

Maria, age 30, buys a $250,000 ordinary life insurance policy with annual premiums of $2,800. After 20 years of payments, her policy has built $35,000 in cash value while maintaining the full death benefit. She can borrow up to $28,000 (80% of cash value) against the policy at 5% interest for her daughter's college expenses, while her life insurance protection remains in force. If she dies, the death benefit is reduced by any outstanding loan amount.

Etymology

Called 'ordinary' because it was the standard or most common type of life insurance sold in the early insurance industry, distinguishing it from industrial life insurance which was sold in smaller amounts.

Common Misspellings

ordianry life insuranceordinary life insurenceoridnary life insuranceordinary life insuranse

More in insurance

Other insurance terms you should know

deductibleThe amount you pay out-of-pocket before your insurance begin…insurance premiumThe amount paid periodically to an insurance company in exch…deductibleThe amount a policyholder must pay out of pocket before insu…copayA fixed amount paid by an insured person at the time of a me…coinsuranceA cost-sharing arrangement where the insured pays a percenta…out-of-pocket maximumThe most an insured person will pay for covered healthcare s…

Also from the same team

Need financial definitions?

Clear definitions for 2,500+ finance, insurance, and investing terms.

MoneyTerms.app