Having choices is good, but in the world of life insurance policies, the number of options and terms can seem overwhelming. Sometimes, there are just too many fish in the sea to easily recognize which one you want to reel in.
But don’t worry. A quick overview of the main options available will help weed out the definite no’s and find your best matches.
(And if you’re still not sure you want to go fishing for a policy, learn about the pros and cons of life insurance.)
Life insurance types fall into two main buckets: term life insurance and permanent life insurance. All other types of life insurance are variations of these two.
The different types of life insurance:
- Term life insurance
- Permanent life insurance
- Whole life insurance
- Universal life insurance
- Indexed universal life insurance
- Variable life insurance
- Variable universal life insurance
- Simplified issue life insurance
- Guaranteed issue life insurance (no exam)
- Final expense life insurance
- Group life insurance
It’s worth noting that simplified issue life insurance and guaranteed issue life insurance are technically types of underwriting (or ways of evaluating the risk of insuring someone) but they are often colloquially referred to as a type of life insurance.
Term life vs. permanent life insurance
Term life is simple, straightforward, and inexpensive life insurance. It covers you only when you need it most, and you get to choose how long the insurance policy will be in effect.
Permanent life is more expensive than a term life insurance policy. If you want to see how much more expensive, check out our life insurance rates by age. Permanent life has more complexity because it comes with a cash value that acts a bit like a savings or investment account and grows as you pay your premiums. As the name implies, the benefit of a permanent life insurance policy is that it covers you for, well, life.
|Length of coverage||Typically 10, 20, or 30 years||Lifetime or until a certain age (i.e., 95, 100, 121)|
|Rates start around…||$10/mo.*||$50/mo.*|
|Good fit for…||Income replacement||Leaving an inheritance|
*Life insurance rates are based on age, health, policy type, and more. Actual rates may vary.
Okay. Differentiating between term and permanent life insurance policies: check. Now let’s dive into the various types of each.
People who choose term life insurance typically expect to cover more immediate needs (like 5–30 years down the line, instead of 50 years from now). With a term policy, parents can protect their income until their children grow up. Homeowners can ensure their partner will be able to pay off the mortgage if they die.
Truthfully, most policy holders outlive their term life policies. And that’s a good thing, because most companies offer only up to 30-year terms. Since many people buy term life insurance before reaching middle age, they’re likely to outlive the term of their insurance policy.
There are two common types of term life: level and non-level.
Level term life insurance
May be best for people who want the same costs and benefits over time
With a level term insurance policy, you get the same coverage for the same price throughout the length of your term. Your premium payments will never increase, and your death benefit will never decrease.
Non-level term life insurance
May be best for mortgage protection, decreasing coverage needs
With non-level term, your life insurance policy changes steadily over time in one of two ways: either your premium payments will go up, or your death benefit will decrease over time. One example? Mortgage insurance. This type of life policy pays the lender the remainder of your mortgage, which decreases as you make your monthly loan payments.
Because the life insurance coverage of a non-level policy decreases over time, you might expect this type of life insurance to cost less. Unfortunately, the price usually remains about the same, so most people opt for level term.
Permanent life insurance breakdown
|Length of coverage||Lifetime||Until a certain age||Until a certain age|
|Rates start around…||$100/mo.*||$50/mo.*||$50/mo.*|
|Treatment of cash value||Low-interest savings account||Low-interest savings account||Investment fund tied to an index|
*Life insurance rates are based on age, health, policy type, and more. Actual rates may vary.
Unlike term life insurance, permanent life insurance is designed to cover you for life. You won’t have to worry about going without coverage in your later years or not leaving an inheritance for your kids.
Another reason folks choose permanent life insurance? They see the policy’s cash value as a tax-free savings or investment opportunity. And they’re partly right. Each month, a portion of your permanent life insurance premium goes toward your cash value.
Depending on the type of life insurance policy you have, that cash might sit in a savings account you can borrow against.
Permanent life insurance does have its downsides, of course. It costs more than term, and it can feel more complicated to shop for and maintain a policy.
May be best for people who want to lock in a rate for life, then leave an inheritance
Whole life has an appropriate name: it covers you for your whole life, provided you continue paying your premiums. Meanwhile, your cash value collects in a low-interest account.
If you’re looking for life insurance plus a savings account, this type of life insurance could help you check both boxes. Your cash value will slowly grow, and your beneficiaries will receive a payout whether you live to 50 or 150. If that sounds good, check out the top 10 whole life insurance companies.
If you’re looking for life insurance plus an investment vehicle, however, whole life probably won’t make the cut. You could invest in almost anything else and earn a higher rate of return.
May be best for people who want to change their policy on the fly
Like whole life, universal life is permanent life insurance, but it differs in two main ways.
First, you can decide how much of your premium payment goes toward funding your death benefit and how much goes into your cash value account. You can even choose to pay a larger or smaller premium (within limits). Keep in mind, however, the less you pay toward your death benefit, the lower the payout your beneficiaries might receive.
Another important difference between a universal life insurance policy and other forms of life insurance? Universal policies have a maturity (or expiration) date, usually when you reach age 95, 100, or 121. When your insurance policy matures, you receive a lump sum, typically equivalent to your cash amount, and your life insurance coverage ends.
May be best for someone interested in flexibility and possibly benefiting from market gains
Indexed universal life insurance is a type of universal life insurance that allows the policy owner to choose to invest the policy’s cash value. The insurance company offers one or more investment options designed to match the growth rate of a well-known index, such as the S&P 500 or NASDAQ 100. That means you can grow your cash value faster without knowing a lot about the stock market.
May be best for savvy investors who want to diversify assets or invest.
Like whole life, variable policies offer lifetime insurance coverage. But variable life differs in one primary way: you can choose how the insurer invests your cash value.
With a variable life policy, your cash value doesn’t merely sit in a savings account. The insurer allows you to choose from several options for investing your variable life insurance nest egg. As a result of these expanded investment options, you could see higher returns. Of course, you also risk lower returns if you choose an investment that doesn’t perform well.
May be best for savvy investors looking for flexibility.
Variable universal life insurance is exactly what it sounds like: a mashup between universal and variable life. With this policy, you can adjust your premium, death benefit, and cash value contributions as needed. And, you can choose how the insurer invests your cash value.
In addition to selecting one of the above types of life insurance, you’ll also choose an underwriting process. Underwriting is how the insurer figures out how much to charge you. Underwriters assess the risk of insuring you by considering information such as your age, health, and habits.
|Fully underwritten||Simplified Issue||Guaranteed Issue|
|Time until approval||Weeks to months*||1 month or less*||Instant to weeks*|
*Times are typical for many companies, but your experience may vary. Check with your insurer for their approval timeline.
All underwriters factor in the type of policy you’ve chosen and your age. But depending on the kind of underwriting process they use, they may also take into account your health, family medical history, habits, and more.
Other than age and choice of insurance policy, health will most affect the rate you pay for life insurance. And preexisting health conditions and medical exams can cause delays in the application process or result in denials.
Luckily there are three kinds of underwriting, allowing applicants to choose what works for them. The types are fully underwritten, simplified issue, and guaranteed issue.
Fully underwritten life insurance
May be best for healthy people who want the lowest rates
Fully underwritten is by far the most common form of underwriting. It’s the industry default setting.
Some companies call fully underwritten policies “exam-required policies” because—you guessed it—they require a medical exam. These exams usually are completed in just a few minutes. Learn what life insurance medical exams test for.
While fully underwritten life insurance policies generally offer the best rates, they have two potential downsides:
- A slower application process as you schedule, take, and await results from the exam
- The potential for those with health issues or preexisting conditions to be turned down for life insurance coverage.
May be best for people who don’t want to take a medical exam
Instead of requiring a medical exam, this underwriting process relies on a medical questionnaire to confirm your health status and family history. While the questionnaire is less time consuming and not as invasive as an exam, you may need to provide medical records to back up your answers.
If you’re too busy to take an exam, don’t want a lengthy application process, or fear what life insurers may find, consider applying for simplified issue life insurance.
May be best for people with preexisting health conditions
Also known as a no-exam policy, a guaranteed issue policy uses minimal underwriting that doesn’t consider your health. If you’ve been turned down for a policy before or know you have a condition that makes it difficult to obtain life insurance coverage, consider guaranteed issue life insurance.
Apply Online Life Insurance
Life insurance is notorious for being a bit behind the times when it comes to online applications. Luckily, there are a few companies that do offer an online application that is quick and easy to fill out.
|Apply Online Life Insurance|
|Fabric||Fabric is an online company that offers term life insurance. In addition to life insurance, they offer other family planning tools like wills and a vault for your must-have financial info.||Get a Quote|
|Haven Life||Haven life offers term life insurance. Their application is easy and they provide an instant decision on coverage eligibility and your rate.||Get a Quote|
|Bestow||Bestow offers 2-, 10-, and 20-year term life insurance plans. There’s no medical exam and algorithmic underwriting allows for a quick result.*||Get a Quote|
*Issuance of policy may depend on answers to a medical questionnaire.
Specialty life insurance policies
In addition to the policy and underwriting types listed here, you may have seen other kinds of life insurance, like final expense or life insurance for couples. These options typically focus on tackling a single life insurance need, such as paying for burial expenses or ensuring children are cared for if both parents die.
You have many specialty life insurance options, but we’ll briefly tackle a few of the most popular choices and why you might want them.
May be best for people with no dependents
Final expense insurance usually comes in the form of a low-payout, short-term (often 10-year) term life insurance policy designed to cover costs for funeral expenses and, in some cases, final medical bills. If you don’t have dependents or debt, final expense insurance could be an excellent low-cost option.
Unfortunately, insurers often require a lengthy waiting period for this to take effect–sometimes up to two years. That means your beneficiaries won’t get the full payout if you die before the waiting period is over, but they may get a return of premium or a partial amount instead.
May be best for people looking for low-cost supplemental life insurance or those with preexisting health conditions
This type of life insurance is bought as part of a group, often through your employer or a union. Because it is bought in bulk, employers often secure low rates and may help cover some costs for the policies, making them an excellent deal.
Unfortunately, you’ll probably lose coverage if you leave the group (most often when you change jobs), so these policies work best as a supplement to existing life insurance that you control, rather than as a standalone policy.
Accidental death and dismemberment (AD&D) insurance
May be best for people who want extra protection for physical injuries
AD&D insurance pays out if you die in an accident. The good news is, you don’t always have to die to receive a payout. If you lose a limb or the use of one or both eyes, the insurer will give you a portion of the full payout—provided the loss is due to an accident, not an illness.
The bad news is, it won’t pay out if you die from anything other than an accident. The top three causes of death in the US are cancer, heart disease, and respiratory disease (accidents come in at number four). Accidental death insurance provides fantastic supplemental coverage if you think you’ll likely have an accident in the future, but as stand-alone life insurance coverage, it could fall short of your needs.
Joint and survivorship life insurance
May be best for couples who want to share a policy
You and a partner (usually a spouse, but that’s not a requirement) can apply for joint or survivorship life insurance if you want life insurance coverage for two people for little more than the cost of insuring one.
A joint policy pays out the full death benefit when the first partner dies and is designed to provide income replacement for the remaining partner.
A survivorship policy, on the other hand, pays out only when both partners have died, making it a common choice for parents concerned about providing for their children.
Caution: You can’t legally name a minor as the beneficiary of a life insurance policy. If you want to leave money for your underage children, you’ll need to set up a trust and choose a trusted adult to control those funds until your children grow up.
What type of life insurance is right for me?
Whew, that was quite a list, wasn’t it? Wouldn’t be easier if we could just tell you which policy to buy? Yes, it would. But here’s the deal: the right type of life insurance is different for every person.
Your sister might choose a no exam universal life policy because she doesn’t mind paying higher premiums for the convenience and flexibility. Your work friend might want a whole life policy because he’s single, has no kids, and wants to diversify his retirement savings. But if you have a mortgage, spouse, kids, and a strict budget to work with, level term might be your ideal match.
How do you know what the best life insurance policy for you is? Well, you’re on the right track by doing your research. Next, you could check out our life insurance calculator. It’ll tell you how much coverage you’ll need. Armed with that number, you could peek at some life insurance rates to get an idea of cost.
And finally, you could research the best life insurance companies and the types of policies they sell.
Of course, if you’ve had your fill of reading for the day and just want to make this life insurance thing happen, get some quotes using our life insurance quote tool. See? Options are good.
1. Medical News Today, “The Top 10 Leading Causes of Death in the United States”
Reviewed by a licensed life insurance agent
Chelsie Ball has been a licensed life insurance agent for more than 9 years. She is focused on matching you with the best life insurance policy for you & your family.
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