Common types of life insurance include:
- Term life insurance.
- Whole life insurance.
- Universal life insurance.
- Variable life insurance.
- Simplified issue life insurance.
- Guaranteed issue life insurance.
- Group life insurance.
All types of life insurance fall under two main categories:
- Term life insurance. These policies last for a specific number of years and are suitable for most people. If you don’t die within the time frame specified in your policy, it expires with no payout.
- Permanent life insurance. These policies last your entire life and usually include a cash value component, which you can withdraw or borrow against while you’re still alive.
Term life insurance
How it works: Term life insurance is typically sold in lengths of one, five, 10, 15, 20, 25 or 30 years. Coverage amounts vary depending on the policy but can go into the millions. “Level premium” term life insurance locks in the same price for the length of the policy. “Annual renewable” term life is a one-year policy that renews every year. Annual policies can be useful if you have short-term debts or need coverage for a brief period of time.
Whole life insurance
How it works: Whole life insurance typically lasts until your death, as long as you pay the premiums. It’s the closest thing to “set it and forget it” life insurance. In general, your premiums stay the same, you get a guaranteed rate of return on the policy’s cash value, and the death benefit amount doesn’t change.
Universal life insurance
Guaranteed universal life insurance
How it works: The death benefit is guaranteed and your premiums won’t change. There’s typically little to no cash value within the policy, and insurers demand on-time payments. You can choose the age
Variable and variable universal life insurance
How they work: The cash value in variable life and variable universal life insurance is tied to investment accounts, such as bonds and mutual funds. Variable life insurance premiums are typically fixed and the death benefit is guaranteed, regardless of how the market fares. In contrast, variable universal life insurance premiums are adjustable, and the death benefit is not guaranteed. If you’re considering a policy like this, a fee-only financial advisor — a planner who doesn’t earn commissions based on product sales — can help you select the best one.
Simplified issue life insurance
Simplified issue policies don’t require you to take a medical exam. However, you may be asked a few health questions and could be turned down based on your answers. Instant-approval life insurance policies use quick, online health questionnaires, as well as algorithms and big data to speed up the application process.
Guaranteed issue life insurance
Guaranteed issue life insurance requires no medical exams and no health questions. In short, you can’t be turned down for coverage if you’re within the eligible age range, which is typically 40 to 85. However, this is an expensive way to buy life insurance, and coverage amounts are generally low.
In addition, these policies have graded death benefits, which means if you die within the first few years of having the policy, your beneficiaries may receive only a partial payout. People often buy this type of life insurance if they’ve been turned down elsewhere due to their health but they want to cover final expenses, such as funeral costs.
