Types of life insurance

Term life insurance policies

Term life insurance only pays out if you (the policyholder) die within a specified period. This “term” is a set time frame that’s usually between one and 30 years.

Term life insurance is the simplest form of life insurance, and it’s often a great option if you’re looking to avoid leaving a loved one with significant debt. You pay a fixed premium throughout the term, and in return, your beneficiary can get anywhere from $10,000 to $500,000 (or more) when you die.

Eligibility is usually based on medical exams and your age.

Whole life insurance policies

Whole life insurance, also called permanent life insurance, remains in place until you die as long as you continue to make premium payments on it. Whole life insurance policies provide death benefits that are as flexible as those offered by term life policies, if not more so.

With some whole life insurance policies, your premiums build cash value that you may be able to borrow from or use to fund your retirement.

Universal life insurance policies

Universal life insurance, also called adjustable life insurance, is another type of permanent life insurance that also builds cash value. With one of these policies, part of your premiums goes towards the death benefit while the other part goes towards building up a cash value account that generates interest.

Eventually, you can adjust where these funds are going. For example, as your cash value grows, you can use it to pay your premiums for you. However, this may drain your cash value account and result in a lapsed policy, ending your coverage.

Variable life insurance policies

Variable life insurance is also a type of permanent life insurance. However, the money you pay into this policy’s savings account can be used to buy stocks, bonds and money market mutual funds. These investments have greater growth potential than a cash value account, but they have more risk as well. Some policies have limitations to reduce risk, but they can’t prevent you from losing money.

Variable life insurance policies can be a good option depending on your long-term goals and your age. Younger people may benefit from these policies more because they have time to ride out the ups and downs of the market. Before choosing this type of life insurance policy, you should know a bit about investing or, if possible, work with a financial advisor.

Simplified issue life insurance policies

Simplified issue life insurance, also called simplified whole life insurance, is a type of final expense insurance often used by people who can’t qualify for other types of life insurance.

Simplified issue life insurance generally doesn’t require a medical exam, so it can be a good option for older people or those with preexisting conditions. You’ll probably have to answer a few basic medical questions (“Do you smoke?”, etc.), but the medical info you must supply is much less detailed.

The downsides are that these policies often have smaller death benefits (between $2,000 and $50,000) and relatively high premiums. This type of policy usually isn’t available until you’re 45 to 50 years old.

Guaranteed life insurance policies

Like simplified issue life insurance, guaranteed life insurance is another form of final expense insurance. However, these policies go a step further and guarantee coverage if you are within the age range (usually at least 50 years old), no matter your medical history.

However, there may be a delay between when you get your policy and when you obtain full coverage (i.e., when your beneficiaries can receive the full death benefit). This is called a graded death benefit, and it may limit how much your loved ones can receive for two to three years after you sign up.

Group life insurance policies

You can only purchase group life insurance with other people, usually coworkers or other members of a professional organization. There are some risks and limitations, but most term life insurance policies are more accessible through group policies than if you applied on your own.

Policy details, including the type of coverage and benefits, range widely and should be carefully considered before you sign up. You may also lose access if you’re no longer part of the group in question or switch jobs.

Bottom line: What is the best type of life insurance for me?

The best life insurance company for you depends on a lot of factors, including your age, budget and financial goals. Take the time to compare different types of life insurance to find the policy that fits your needs.

The right life insurance policy can protect your loved ones when you’re no longer around, so it’s worth putting in the extra time to determine which policy provides them with the help they’ll need.

Article sources

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:

1. Insurance Information Institute (III), “What are the principal types of life insurance?” Accessed September 7, 2021.