Types of Life Insurance

Life insurance offers vital protection for your loved ones after your death, but finding the best policy for your needs can be confusing. With all the different types of life insurance, how do you know where to start looking?

Picking the right life insurance to keep your loved ones from financial hardship doesn’t have to be challenging. Term life insurance usually meets most people’s needs for coverage, but there are many options that can fit just about any need.

Read on to learn more about multiple life insurance policies and which one is best for you. Then, compare quotes to make sure you find the lowest life insurance rates possible.

Read more: Can you have multiple life insurance policies?

Different Types of Life Insurance

You probably know that life insurance is a fantastic way to financially protect your loved ones after your death. However, buying coverage is more complicated than simply signing up for a policy.

An important step in finding the right coverage for your needs is understanding the different life insurance policies. From short-term solutions to definite life insurance plans, there’s a policy that can fit just about any budget and lifestyle.

Read more: How do life insurance companies handle death with dignity cases?

Below, you can explore your insurance options and learn how to determine which is right for you. Choosing the right plan for your needs might be confusing, especially if you’ve never bought insurance. Remember, you can always speak with an insurance representative or financial advisor for more advice if you’re struggling with your choice.

Read more: How does life insurance work?

Term Life Insurance

Term life is the most popular type of insurance that individuals buy. As its name suggests, you can buy this coverage in terms. All companies are different, but most offer terms of 10, 15, 20, 25, and 30 years. Once the term is over, the policy generally expires.

Read more: How long should life insurance coverage last?

Term policies are popular because they balance affordability and financial protection.

You’ll find some of the lowest prices with term life, making it ideal for the following types of people:

• Newlyweds and parents with young children
• Business owners
• People with large debts
• Homeowners with a mortgage

Read more:

• Life Insurance for Business Owners
• Mortgage Life Insurance

The people who get the most out of term life insurance are those who either have dependents or large debts. For example, if you’re the sole income provider in your household, a term life insurance payment keeps everything running, giving your loved one’s space to grieve.

Read more: Life Insurance for Newlyweds

Types of Term Life Insurance

If this plan sounds right for you, you have a few types of term life insurance to choose from beyond a standard policy:

• Convertible term: At the end of your policy’s term, you’ll have the opportunity to continue your coverage by converting it to a permanent plan.
• Decreasing term: Your plan’s coverage decreases at a set rate, usually once a year, until the plan ends. This is an affordable option to cover a financial obligation, like a mortgage or large debt.
• Renewable term: Your policy can be extended at the end of the term, usually without needing a medical exam.

Term life remains a popular choice for people because of its affordability, but it comes with a risk. Your beneficiary receives nothing if your policy ends before you die.

Comparing Term Life Insurance Rates

While many factors affect your term life prices, three of the most important are your age, gender, and the length of your term.

The actual price you’ll pay for insurance depends on your unique situation, but you’ll definitely see lower prices in your younger years.

Whole Life Insurance

Whole life insurance — also known as permanent life insurance — lasts your entire life as long as you pay your monthly bill. Since your rates will stay the same throughout the policy, it’s best to buy whole life as young as possible when your prices are low.

Not only do whole life plans outlast term policies, but they also accumulate cash value. You can use the cash value as a source of emergency funds or to take out a loan. It can also help pay for medical expenses. (For more information, read our “Which type of life insurance policy generates immediate cash value?“).

There are three types of whole life plans, categorized by how you make your payments:

• Single premium. The standard form for whole life is a single premium plan with fixed rates for the entire policy.
• Limited premium. Limited premiums start with higher rates that gradually decrease as you get older. This is an excellent option for people who don’t want to worry about expensive insurance payments later in life. (For more information, read our “Limited Pay Life Insurance“).
• Modified premium. This plan starts with lower rates that gradually increase to a set amount. Typically, people choose this option to make whole life affordable early in life when they might not make as much money.

Read more:

• Single Premium Life Insurance
• Which of the following is an example of a limited-pay life policy?

Modified whole life insurance is a type of permanent life insurance that combines features of traditional whole life insurance with greater flexibility in premium payments.

Unlike regular whole life policies with fixed premiums, modified policies start with lower initial premiums that gradually increase over a designated period, typically five to ten years, after which they remain level for the rest of the policy’s life.

Read More: Modified Whole Life Insurance Explained

Variable Whole Life Insurance

Variable life insurance works similarly to a standard whole life plan. The main difference is what happens with your accumulated cash value.

With a variable life policy, your cash value is invested in sub-accounts similar to a mutual fund. You can drastically increase the amount in your policy if you invest in the right accounts, but there’s also the risk of loss if the market goes down.

As a special benefit, any money you make through your investment with a variable plan isn’t taxed as income. If you access your fund correctly, the income can be entirely nontaxable.

Many companies offer a hybrid policy called variable universal life, which allows you to change your minimum payments from month to month.

Variable life insurance might be a good fit if you want a permanent plan and investment opportunities. It’s probably not the best option if you want a policy you can purchase and forget — variable life insurance requires attention.

Guaranteed Universal Whole Life Insurance

Guaranteed universal life (GUL) insurance is a permanent plan that accumulates minimal cash value. Your life insurance death benefit and payments remain the same throughout your policy’s life. The value of your policy isn’t affected by poor market performance.

GUL insurance is an excellent option for people who want permanent coverage but don’t want to spend time managing a policy. The price for this plan usually falls somewhere between whole and term life insurance. Since the policy accumulates very little cash, it costs much less than a regular whole life plan.

Most GUL policies allow you to change your coverage amount if you need a larger or smaller death benefit throughout your life. However, your policy will likely lapse if you miss a payment since you don’t have accumulated cash value to rely on.

Indexed Universal Whole Life Insurance

As one of the most complicated types of life insurance, indexed universal life (IUL) plans offer people the opportunity to grow wealth while keeping their loved ones financially safe.

IUL plans are permanent as long as you pay your bills. They also accrue cash value, but part of the accumulated value is linked to a stock market index. The movement of the index affects the rate of return on your cash value.

Many companies offer a minimum guaranteed rate of return, while some impose a rate cap. IULs are a solid option for people looking to use their life insurance to grow wealth because they are less risky than a variable universal life plan.

It also comes with the bonus of being tax-free in many cases. You don’t need to pay capital gains when the value of your policy increases unless you abandon it before it’s matured. It also doesn’t count toward your income for social security.

However, IUL policies often have more fees than other types of life insurance, including administrative expenses, commissions, and surrender charges.

Different Types of Life Insurance Underwriting

Life insurance underwriting is the process an insurance company uses to determine how much of a risk someone represents.

Life insurance has three types of underwriting — fully underwritten, simplified issue, and guaranteed issue. The underwriting on your policy determines how much insurance you can buy and what it’ll cost you.

Fully Underwritten Life Insurance

For applicants in good health, fully underwritten policies are usually your cheapest and most valuable option. Fully underwritten policies typically include a medical exam and interview, along with questions about your lifestyle and family history.

Your rates are crafted specifically to your life expectancy, which means you should aim to give as much information about yourself as possible. Young nonsmokers in good health pay the least for fully underwritten policies, but other age groups can also see affordable rates.

Simplified Issue Life Insurance

Simplified issue life insurance plans are a step down from fully underwritten plans, as they do not require a medical exam. However, you’ll still have to answer some medical questions, and your application can be rejected if you are deemed too risky.

People usually choose simplified issue policies when they need immediate coverage, or they want to skip a medical exam. Your rates will be higher if you choose this plan, but you won’t have to wait for coverage.

Read more: What is an instant life insurance policy?

Guaranteed Issue Life Insurance

Guaranteed issue life insurance requires the least information from you, with no medical exam or interview. As long as you fall within the eligible age range, you won’t be denied coverage.

Rates with a guaranteed issue plan are usually much higher, and your death benefit will probably be smaller than with a standard policy. Most plans also include graded death benefits, meaning your beneficiary will receive only a partial payout if you die within the first few years of your policy.

Most guaranteed issue life insurance policies are sold to people who want coverage for funeral expenses but have been denied coverage elsewhere due to health concerns.

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Understanding Other Types of Life Insurance

While term, whole, and universal policies are the most commonly purchased policies, you have many other options.

These include:

• Employer-provided life insurance: Typically offered by employers, insurance companies base rates on a group of people rather than an individual. Group life insurance usually comes with lower death benefits.
• Credit life insurance: Rather than pay a beneficiary of your choice, this life insurance pays off a loan when you die.
• Mortgage life: This plan pays off the remaining balance on your mortgage directly to your lender.
• Accidental death and dismemberment (AD&D): Often sold as an add-on to a standard policy, AD&D pays your beneficiary if you’re killed in an accident. It also makes payments if you lose a limb, eyesight, or hearing. (For more information, read our “Life Insurance vs. Accidental Death & Dismemberment (AD&D) Insurance: Which Is Better for You“).
• Joint life: These policies cover a pair of people in one policy. You can choose for the policy to pay after the first or second person dies, and it is a solid option for people with a financial dependent.

As you can see, there are several options for different types of life insurance coverage. An important step in finding the right coverage for your needs is to compare quotes with as many companies as possible.

You can also speak with an insurance representative or a financial advisor for help sorting through your options.

Read more: Voluntary Life Insurance vs. Basic Life Insurance: Which Is Better for You

Buying Life Insurance Add-Ons

Add-ons — also called riders — increase the value of your plan.

Although each company will have a unique list of available add-ons, most offer the following options:

• Accelerated death: If you become ill with a chronic or terminal illness, you can use part of your death benefit to pay for medical expenses.
• Waiver of premium: This add-on allows you to skip making payments on your policy if you become seriously disabled.
• Long-term care: You can use part of your death benefit to pay for long-term care, but this add-on can be expensive.
• Term life conversion: Only available for term life plans, this add-on allows you to convert your insurance to a permanent plan. This is a good choice for people concerned about their future health.
• Child life: Many plans allow you to insure your child through your policy. When the child comes of age, you can usually split the policy and transfer it into their ownership.
• Disability payments: If you become disabled, you can elect to have monthly payments withdrawn from your death benefit to supplement your income.
• Guaranteed insurability: You can elect to add coverage to your policy without undergoing more medical exams or interviews. This add-on is only available for whole or universal policies.
• Return of premium: The money you paid for your life insurance will be returned if you outlive your policy. This is only available for term life insurance policies.
• Spouse life: This add-on puts a small amount of coverage on your spouse. It costs less than starting an individual policy, but the coverage is much less.
• Accidental death: Sometimes called double indemnity, this add-on doubles your death benefit if you die in an accident.
• Family income: You can select the number of years your beneficiary will receive a monthly payment after your death. This is a popular choice for people who are the sole source of income for their families.

You’ll have to ask your insurance company about add-on availability, but most major life insurance companies have a variety for you to choose from. Some add-ons will be more beneficial to you than others — for example, you don’t need to buy a family income rider if you live by yourself.

You should always be cautious about adding too much coverage to your policy. Add-ons can drastically increase how much you pay for your life insurance, so choosing only what you need is essential to keep your prices low.

Read more: Life Insurance for People Living With Disabilities

Comparing Life Insurance Rates

While choosing the right type of insurance can be complicated, you can get an idea of which policy might be best for you by looking at the pros and cons of each.

Many insurance experts agree that term life is all most people need to meet their life insurance needs. However, an insurance representative can talk you through your options and help you decide what is best for you if you want something else.

Your life insurance rates depend on your unique attributes. Companies look at the following factors when determining how much life insurance costs:

• Age
• Health
• Gender
• Smoking habits
• Family history
• Lifestyle and hobbies
• Career

Companies use these factors to craft rates but emphasize each differently. This is why it’s so important to compare rates — you’ll see a wider variety of prices the more you look.

An essential aspect of the price of your life insurance is health ratings.

While each company is different, you can get an idea of the health classifications below:

• Preferred Plus: To qualify for the lowest rates, you must be in good health, have no medical concerns in your family history, and be an average weight for your age and gender.
• Preferred: The second lowest rates are available to people with a minor health condition, average weight, clean family history, and no dangerous hobbies.
• Standard Plus: You’ll qualify for the third lowest rates if you have a few medical issues but are in relatively good health or you’re a bit overweight.
• Standard: This level is considered average and includes people with a few medical conditions, concerning family history, or who are overweight.
• Preferred Smoker: While you’ll pay more for life insurance as a smoker, you’ll pay a little less if you are in otherwise good health.
• Standard Smoker: Reserved for nicotine users with a few health conditions and who are overweight.

Beyond these standard classifications are table ratings. Table ratings are reserved for people with serious health concerns, who are very overweight, have dangerous hobbies like skydiving, who work in hazardous industries, or who have criminal backgrounds.

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How to Buy Life Insurance

With all the different life insurance types, knowing where to start looking for coverage can be difficult. However, buying life insurance is usually about as simple as purchasing any other kind of coverage.

To get started, follow these easy tips:

• Determine how much coverage you need. Generally speaking, you buy enough coverage to cover your financial dependents for a few years and pay any outstanding debts.
• Select a type of life insurance. Picking the correct type of life insurance is vital for more than just coverage — it’s also important if you want investment opportunities.
• Compare quotes. As you saw above, insurance companies look at a lot of factors. Requesting a quote from multiple companies is integral to finding the lowest rates.
• Complete an application. The application for life insurance is usually quick, needing only basic information like your social security and driver’s license numbers.
• Expect a phone call. Unless you get guaranteed issue life insurance, you’ll probably get a phone call for a medical exam. An insurance representative will ask you about your health and lifestyle.
• Schedule a medical exam. If needed, you’ll schedule a time for a medical exam, usually at your home. The examiner will check your vitals, weight, and height and draw blood.

Once these steps are complete, the last step is to wait for approval. Depending on your company and which type of insurance you’re trying to buy, it might take several weeks for your quote to be finalized.

When all your information has been processed, you’ll receive a quote. If you don’t like the quote, you can reject it and look elsewhere for coverage. However, if everything looks good, you can digitally sign your documents.

How to Save Money on Life Insurance

Like other types of coverage, life insurance can get expensive. For that reason, finding ways to save money when buying life insurance is key to getting the most out of your policy.

To save on life insurance, try the following:

• Buy what you need. Most people don’t need millions of dollars in coverage. Choosing an appropriate amount to cover your beneficiary’s expenses and pay your debts is a simple way to keep rates low.
• Choose term life. Unless your heart is set on a different policy, you should consider term life insurance. Term life plans offer the most coverage at affordable rates.
• Stay healthy. While you can’t avoid every medical problem, frequently exercising, keeping your weight down, and quitting tobacco products will help keep your rates low.
• Buy young. The younger you buy life insurance, the lower your rates will be.

Read more:

• What is an instant life insurance policy?
• What is the minimum coverage amount for life insurance?

There are some other ways to save on life insurance, such as:

• Picking financially stable companies
• Shopping around for multiple options
• Considering group insurance
• Making some lifestyle changes

Comparing quotes is also important when trying to keep your rates low. As you saw above, companies determine your rates by looking at many different factors. You can overpay by thousands if you go with the first company you get a quote from.

Case Studies: Types of Life Insurance

Case Study 1: Term Life Insurance – SecureLife Insurance Company

John is a 35-year-old married man with two young children. He wants to ensure that his family is financially protected in the event of his untimely death. After careful consideration, John decides to purchase a 20-year term life insurance policy from SecureLife Insurance Company.

The policy offers a death benefit of $500,000, which would provide his family with financial stability and help cover expenses such as mortgage payments, education costs, and daily living expenses in case of his demise.

Case Study 2: Whole Life Insurance – Lifetime Assurance Insurance

Emily is a 45-year-old professional who is concerned about providing long-term financial security for her family. She chooses to invest in a whole life insurance policy offered by Lifetime Assurance Insurance.

The policy provides a death benefit of $1 million and accumulates cash value over time. Emily appreciates the lifelong coverage and the ability to borrow against the policy’s cash value for future needs, such as paying for her children’s college education or supplementing her retirement income.

Case Study 3: Universal Life Insurance – All-in-One Insurance Corporation

Sarah, a 50-year-old business owner, seeks a life insurance policy that offers both protection and flexibility. She opts for a universal life insurance policy from All-in-One Insurance Corporation. The policy provides a death benefit of $750,000 and offers a savings component that accumulates cash value on a tax-deferred basis.

Sarah appreciates the ability to adjust her premium payments and death benefit as her financial situation changes. Additionally, she can access the policy’s cash value for emergencies or to supplement her retirement income.

Read more: Life Insurance Retirement Plans (LIRP)

Case Study 4: Variable Life Insurance – Prosperity Insurance Group

David, a 40-year-old investor, is looking for a life insurance policy that combines protection with the potential for higher investment returns. He chooses a variable life insurance policy offered by Prosperity Insurance Group.

The policy provides a death benefit of $1.5 million and allows David to allocate his premium payments into various investment options such as stocks, bonds, and mutual funds. He has the opportunity to grow the policy’s cash value based on the performance of his chosen investments, offering the potential for greater financial gains over time.

Read more: Prosperity Life Group Life Insurance Review

Case Study 5: Indexed Universal Life Insurance – SecureFuture Insurance

Maria, a 30-year-old professional, is interested in a life insurance policy that offers growth potential linked to market indexes while also providing a safety net for her loved ones. She selects an indexed universal life insurance policy from SecureFuture Insurance.

The policy provides a death benefit of $500,000 and allows Maria to allocate a portion of her premium payments into an indexed account that tracks specific market indexes. This arrangement provides the potential for increased cash value growth, coupled with a guaranteed minimum interest rate, ensuring a degree of stability in her policy’s value.

Find the Best Life Insurance for Your Needs Today

Buying life insurance might sound complicated, especially when you learn how many types of coverage you can buy. However, understanding your options and choosing the right plan for you doesn’t have to be difficult.

From term life to guaranteed issue universal plans, there’s something to meet just about anyone’s needs.

No matter which type of insurance you choose, you should always shop around to see what different companies can offer you. Getting multiple quotes will help you find the lowest rates for your life insurance needs.

Your life insurance quotes are always free.

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