What are the different types of life insurance?
Updated 7:46 a.m. UTC Feb. 22, 2024
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Key points
- There are two main types of life insurance: term life insurance and permanent life insurance.
- Term life insurance is generally the cheapest type of life insurance, with rates and coverage locked in for a set period, or term.
- Permanent life insurance lasts a lifetime and usually builds cash value over time, but is more expensive.
There are several types of life insurance available, and the best one for you will depend on your coverage needs, budget and financial goals. We’ll help you understand your primary life insurance options and how to pick the plan best suited to your needs.
Ethos
What are the different types of life insurance?
There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance policies lock in rates and coverage for a specific period, or term. You may be able to renew your life insurance before the term ends, but your rates will likely increase.
Permanent life insurance provides coverage for a lifetime (or to an advanced age, such as 105). It also usually includes a cash value component which operates as a savings or investment account that is funded by a portion of your premium and grows over time. There are multiple types of permanent life insurance, including whole life, universal life and guaranteed life insurance.
Learn more about the different types of life insurance:
- Term life insurance.
- Whole life insurance.
- Universal life insurance.
- Guaranteed issue life insurance.
- Burial insurance.
- Other types of life insurance.
Term life insurance
Term life insurance allows you to lock in rates and coverage for a specific period, or a term.
- Level-term life insurance offers a variety of term lengths, such as 5, 10, 15, 25 or 30 years.
- When the level term period ends, you can usually renew the policy every year, up to a certain age, with some insurers offering automatic renewals. Your rates will likely increase with each annual renewal.
- You may have the option to convert your term life policy to a permanent policy.
- Term life insurance is the cheapest life insurance option for most people.
Who is term life insurance good for?
If you’re young and relatively healthy, term life insurance is an affordable type of life insurance that can provide financial protection for a specific time frame, such as while you’re paying down a mortgage or saving for a child’s tuition.
“Term insurance is great for individuals who are younger, due to its affordability and versatility in coverage applications,” said Krisstin Petersmarck, investment advisor representative at Bridgeriver Advisors in Bloomfield Hills, Michigan. “Typically, we will see people between the ages of 20 to 60 using term insurance to provide a financial safety net for families in the event of premature death.”
Whole life insurance
- Most common type of permanent life insurance policy, according to the Insurance Information Institute (Triple I).
- Provides lifelong coverage, as long as your policy is in good standing.
- Offers a guaranteed death benefit, guaranteed premiums and guaranteed rate of return on the cash value portion of your policy.
Who is whole life insurance good for?
Whole life insurance is best suited for you if you’re seeking lifelong coverage with a guaranteed premium and death benefit. It’s also a good option if you’re seeking low-risk, cash value life insurance, as the cash value rate of return is guaranteed.
Universal life insurance
- Provides coverage for a lifetime or until an advanced age, depending on policy details.
- Includes a cash value component that’s usually tied to a money market rate of interest.
- There are multiple types of universal life insurance:
- Guaranteed universal life insurance.
- Indexed universal life insurance.
- Variable universal life insurance.
- Some types of universal life insurance allow you to adjust your policy’s death benefit and premium payments.
- Some types of universal life insurance, like indexed universal and variable universal life, carry more risk due to increased dependence on market performance.
Who is universal life insurance good for?
Universal life insurance may be a good option if you want long-term life insurance coverage with the potential of flexible premiums and death benefits. It also may be worth considering if you want a cash value that is market-dependent.
Because universal life insurance can rely heavily on market performance, some types of coverage carry more risk than others. If you’re shopping for universal life insurance, especially indexed universal or variable universal life insurance, consider speaking with a financial advisor who can help you determine the best path forward.
Guaranteed issue life insurance
- Offers “guaranteed” approval to applicants who fall between the minimum and maximum age requirements set by the insurer.
- Does not require medical exams or health questionnaires.
- Generally has lower death benefits — usually $25,000 or less — and higher rates for the amount of coverage available, when compared to other types of permanent life insurance.
- Includes a cash value you can access while you’re alive.
Who is guaranteed issue life insurance best for?
Guaranteed issue life insurance may be an option to consider if you need a relatively low amount of life insurance coverage but don’t have other options, possibly because you have medical conditions that leave you ineligible for other types of life insurance.
Burial insurance
- Also known as funeral insurance or final expense insurance.
- Designed to cover the cost of a funeral, burial, memorial service and other end-of-life expenses, such as medical bills.
- Typically provides $5,000 to $25,000 in coverage, which is less than other permanent life insurance policies.
- Usually does not require a medical exam and is easy to qualify for.
Who is burial insurance good for?
Burial insurance may be a good choice if you do not qualify for other types of life insurance or if you only need a small death benefit. It can provide just enough coverage for family members to pay for end-of-life expenses, though the death benefit can also be used for other expenses or as an inheritance.
Other types of life insurance
No-exam life insurance
No-exam life insurance is a type of coverage that does not require you to undergo a medical exam as part of the application process.
Instead, insurers rely on other sources, such as digital health records, to determine your risk and set rates. This type of life insurance is increasingly available to qualifying applicants, often at prices comparable to policies that require a medical exam.
Mortgage life insurance
- Also known as mortgage protection insurance.
- Designed to cover your mortgage if you die.
- Policy premiums remain the same over the course of the term, but the coverage amount decreases alongside your mortgage balance.
- The beneficiary of a mortgage life insurance policy is the mortgage lender.
Keep in mind that other life insurance options, such as term life insurance, can also be used to pay off your mortgage while also giving beneficiaries flexibility in how they use the death benefit.
Survivorship life insurance
- Also known as second-to-die life insurance or joint life insurance.
- Insures two people, often spouses or partners.
- Only pays out a death benefit upon the death of the second insured.
- Often allows two insured individuals to purchase more coverage at a lower rate compared to two separate life insurance policies.
Supplemental life insurance
- Provides additional life insurance coverage to augment existing group or employer-sponsored life insurance policy.
- Typically purchased through an employer.
- Does not carry a cash value.
- Often ends when the employer/employee relationship is terminated, but sometimes supplemental life insurance policies are portable.
What is life insurance?
Life insurance is a contract between you and an insurance company that in exchange for your premium payments the insurer will provide a death benefit to your beneficiaries if you die while the policy is active and in good standing.
For example, if you purchased a $500,000, 20-year term life insurance policy and passed away while the policy was in force, your beneficiaries would receive a $500,000 death benefit.
Premiums, or the amount of money you pay to keep your policy active, are paid regularly, usually monthly, quarterly, or annually.
Depending on the type of life insurance policy plan, there will be other components, such as life insurance riders, which add additional types and levels of coverage, as well as the option to grow a cash value that can be tapped into while you’re alive.
Dig deeper to understand how life insurance works
Which life insurance plan is best for me?
The best life insurance plan for you is the one that meets your coverage needs and financial goals while fitting into your budget.
If you want coverage for a specific period, such as until your mortgage is paid off or your children reach adulthood, consider term life insurance. If you want coverage that lasts your lifetime, consider a permanent life insurance policy.
If you’re not sure what type of life insurance is best for you, consider speaking to a financial advisor who can examine your goals and budget to determine which life insurance option makes the most sense.
Comparing different types of life insurance
TYPE OF LIFE INSURANCE | COVERAGE LENGTH | DEATH BENEFIT | PREMIUMS | CASH VALUE |
---|---|---|---|---|
Term life insurance
| Lasts for a designated term, such as 10, 15, 20 or 30 years.
| Fixed
| Level for term
| No
|
Whole life insurance
| Permanent
| Fixed
| Level
| Yes
|
Guaranteed universal life insurance
| Permanent
| Can be flexible
| Can be flexible
| Yes
|
Indexed universal life insurance
| Permanent
| Can be flexible
| Can be flexible
| Yes
|
Variable universal life insurance
| Permanent
| Can be flexible
| Can be flexible
| Yes
|
Guaranteed issue life insurance
| Permanent
| Fixed
| Fixed
| Yes
|
Burial insurance
| Permanent
| Fixed
| Fixed
| Yes
|
Supplemental life insurance
| Temporary
| Fixed
| Fixed
| No
|
Mortgage insurance
| Temporary
| Decreasing
| Fixed
| No
|
Survivorship life insurance
| Typically permanent
| Varies
| Varies
| Yes, unless it is a term policy
|
The cost of life insurance
Insurers consider many factors when setting rates for life insurance. Depending on the type of coverage you purchase, an insurer uses the following to determine your rate:
- Age and gender.
- Height and weight.
- Your past and present health.
- Health history of your parents and siblings.
- Nicotine or marijuana use status.
- Amount and type of coverage.
- Driving record, specifically infractions such as DUIs or speeding tickets.
- Any risky hobbies or occupations.
- Credit history.
- Substance abuse.
- Criminal record.
Generally, term life insurance is cheaper than permanent life insurance, and the younger and healthier you are, the lower your life insurance rate will be.
The tables below provide the average annual rates for different types of life insurance. However, it’s always best to get at least three life insurance quotes to help you determine what your average rate may be.
Average annual cost of a 20-year term life insurance policy for a female
LIFE INSURANCE AMOUNT | 30-YEAR-OLD | 40-YEAR-OLD | 50-YEAR-OLD | 60-YEAR-OLD |
---|---|---|---|---|
$250,000
| $143
| $196
| $387
| $989
|
$500,000
| $206
| $309
| $680
| $1,781
|
$1,000,000
| $325
| $526
| $1,240
| $3,375
|
$2,000,000
| $590
| $987
| $2,395
| $6,758
|
Average annual cost of a 20-year term life insurance policy for a male
LIFE INSURANCE AMOUNT | 30-YEAR-OLD | 40-YEAR-OLD | 50-YEAR-OLD | 60-YEAR-OLD |
---|---|---|---|---|
$250,000
| $161
| $225
| $487
| $1,375
|
$500,000
| $249
| $365
| $886
| $2,567
|
$1,000,000
| $407
| $638
| $1,677
| $4,952
|
$2,000,000
| $749
| $1,212
| $3,253
| $9,660
|
Average annual cost of whole life insurance by age
AGE | $250,000 LIFE INSURANCE POLICY - FEMALE | $250,000 LIFE INSURANCE POLICY - MALE |
---|---|---|
30 | $2,314
| $2,563
|
40 | $3,364
| $3,760
|
50 | $5,024
| $5,639
|
Average annual cost of universal life insurance by age
AGE | $250,000 LIFE INSURANCE POLICY - FEMALE | $250,000 LIFE INSURANCE POLICY - MALE |
---|---|---|
30 | $1,141
| $1,254
|
40 | $1,644
| $1,783
|
50 | $2,360
| $2,589
|
Types of life insurance FAQs
The best type of life insurance for you depends on the reason you’re purchasing coverage, your budget and your health.
If you want coverage for a specific period of time, such as until your children graduate school or your spouse can access retirement funds, a term life insurance policy may be the best option.
Term life insurance may also be the best choice if you’re on a tight budget, as it’s usually cheaper than permanent coverage.
If you want coverage that will remain active for life, or if you want a cash value component as part of your policy, permanent life insurance may be right for you.
Term life insurance locks in rates and coverage for a predetermined amount of time, often between five and 30 years. Whole life insurance is a type of permanent coverage that can last until death and usually includes a cash value account.
The two types of life insurance plans are term and permanent. Term life insurance provides coverage for a specific period — such as 10, 20 or 30 years — during which your premiums are locked in. At the end of the term, you can usually renew the policy or convert it to permanent coverage. Both options will result in increased rates.
Permanent life insurance is a type of coverage that lasts a lifetime, as long as you pay your premiums. There are several types of permanent life insurance, including whole life, variable life and universal life, each with its own defining characteristics.
Most permanent life insurance policies generate cash value. Among the available cash value life insurance options, you’ll find whole life insurance, universal life insurance, indexed universal life insurance and burial or final expense life insurance.
Some types of universal life insurance offer flexible premiums as well as death benefits. This can include variable universal life insurance policies as well as indexed universal life insurance policies.
If you’re looking for life insurance that offers flexible premiums, speak to a financial advisor or life insurance agent who can help you evaluate your life insurance options.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
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