Ordinary Life Insurance

Example

“David chose ordinary life insurance over term life because he wanted permanent coverage and liked the idea of building cash value he could access for emergencies or retirement.”

Memory Tip

Think 'Ordinary = Always there' - unlike term insurance that expires, ordinary life insurance provides permanent, lifelong coverage.

Why It Matters

Ordinary life insurance provides financial security that never expires and builds wealth over time through cash value accumulation. This makes it valuable for estate planning, providing guaranteed death benefits for beneficiaries while creating a financial asset that can be accessed during the policyholder's lifetime for emergencies or retirement income.

Common Misconception

Many people think ordinary life insurance is a poor investment compared to term insurance plus separate investments, but they overlook the tax advantages and guaranteed nature of the cash value growth. The insurance component and investment component serve different purposes and provide guarantees that market investments cannot match.

In Practice

Lisa, age 30, purchases a $500,000 ordinary life policy with annual premiums of $3,200. After 20 years, she has paid $64,000 in premiums, but her policy's cash value has grown to $85,000. She can borrow $60,000 against this cash value at 5% interest for her child's college tuition while maintaining her full death benefit, something impossible with term insurance.

Etymology

Called 'ordinary' from Latin 'ordinarius' (regular, usual) because it was the standard, most common type of life insurance sold when the industry developed in the 18th and 19th centuries.

Common Misspellings

Related Terms

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Other insurance terms you should know

See Also