Guide to Different Types of Life Insurance

Various types of life insurance are available, including term, permanent, and group policies. It’s important to choose the right one for you to maximize value.

Danny Smith
Written byDanny Smith
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Danny Smith
  • Licensed auto and home insurance agent

  • 4+ years in content creation and marketing

As Insurify’s home and pet insurance editor, Danny also specializes in auto insurance. His goal is to help consumers navigate the complex world of insurance buying.

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Sara Getman
Edited bySara Getman
Sara Getman
Sara GetmanAssociate Editor

Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.

Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.

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Life insurance is a financial safety net that ensures your loved ones receive money if you pass away. It provides financial security to your family members or beneficiaries by covering expenses like debts, costs, and future goals.

Many different types of life insurance are available, each serving different needs and budgets.

This article will guide you through each type of life insurance, its costs, and how to choose the right policy for you.

Main types of life insurance

The two main types of life insurance are term and permanent. Term life insurance provides temporary coverage for a set period, typically 10, 20, or 30 years. It’s more affordable than permanent life insurance and is ideal for temporary needs, like paying off a mortgage or income replacement.

On the other hand, permanent life insurance offers lifelong coverage and is typically more expensive than term life insurance. It also often includes a cash value component that grows, and you can access it for loans or withdrawals. These two types of life insurance serve as the foundations for more specific policies.

Term life insurance and how it works

Term life insurance covers a specified period, often 10, 20, or 30 years. If you pass away during the term, the policy pays a death benefit to the beneficiaries. If the term expires and you’re still alive, no benefit is paid out, and the coverage ends unless you renew or convert it.

Term life insurance is typically more affordable than whole life insurance because the coverage period is shorter and the policy has no cash value component. Term life insurance is a good choice if you want temporary coverage for things like mortgage or loan debts, future education costs for your children, or income replacement for a spouse or family.

Permanent life insurance and how it works

Also known as whole life insurance, permanent life insurance lasts your whole lifetime. Unlike term life insurance, permanent life insurance includes a cash value aspect, allowing you to grow your money over time and access it for loans or withdrawals.

Permanent life insurance is typically more expensive than term life insurance because the coverage period is longer and it provides added benefit through the cash value component. Permanent life insurance is a good choice if you’re doing estate or retirement planning, as it allows for financial flexibility not found with term life insurance policies.

Types of term life insurance

Term life insurance comes in various types, each with a unique purpose and serving different needs. Term life insurance is typically more affordable than permanent life insurance but varies in term length, renewal options, coverage amounts, and other aspects.[1]

  • Convertible: This type allows you to convert your term policy into a permanent one at the end of its term without accounting for newly developed medical conditions.

  • Renewable: This type lasts one year, and you can renew it annually without providing evidence of insurability, but premiums rise each year.

  • Decreasing: This type offers cheap, fixed premiums with a decreasing death benefit each year.

  • Level: This type has a fixed monthly payment and death benefit throughout the policy term.

  • Voluntary: This type is an option offered by employers and operates like standard term life insurance.

  • Convertible term life insurance lets you convert your term life insurance into permanent life insurance at the end of the policy without a medical exam. If you develop any medical conditions during your policy term, it won’t affect your premium costs. It’s a great option for younger people, especially people with a history of family medical conditions, who expect to want life insurance in the future and want to lock down affordable premiums.

  • Renewable term life insurance policies last only one year, allowing you to renew each year without showing evidence of insurability. Premiums increase annually, but they tend to start out rather inexpensive, making them a good option if you want affordable premiums and don’t want long commitments.

  • Decreasing term life insurance provides a gradually decreasing death benefit each year over the policy’s lifetime. You’ll often use it in conjunction with a similarly decreasing financial obligation, such as a mortgage. If you want to ensure your mortgage gets paid even if you pass away, this is a good option.

  • Level term life insurance is one of the most standard policies, offering a fixed premium and fixed death benefit over the course of the term. Premiums will be slightly higher, as insurance companies need to account for future health risks. But they’re a good option if you want straightforward coverage for things like future education or other specific financial obligations.

  • Voluntary term life insurance is an employer-sponsored type of life insurance that allows employees to purchase coverage at selected group rates. It’s often affordable and doesn’t require a medical exam, making it a good option if you want simple life insurance to offer some financial protection.

Types of permanent life insurance

Permanent life insurance provides lifelong coverage. It typically includes a cash value component, which grows in value over time. You can use it to cover loans or pay premiums.

Permanent life insurance comes in a variety of different plans, each offering unique coverages and structures. All of them are typically more expensive than term life insurance, as they offer protection for longer coverage periods.[2]

  • Whole: This type provides guaranteed death benefits and cash value growth at a fixed rate.

  • Guaranteed: This type offers coverage regardless of health status, making it a good option if you have serious health issues.

  • Universal/adjustable: This type offers a lot of flexibility, allowing you to adjust premiums, death benefits, and cash value.

  • Variable: This type offers you the ability to have more flexibility with the cash value, allowing you to invest the money in stocks, bonds, and mutual funds.

  • Variable-universal: This type combines the benefits of both variable and universal policies into one.

  • Whole life insurance provides lifetime coverage with fixed premiums and guarantees a death benefit. Its cash value grows at a predetermined rate, and you can access it during the policy. It’s a good option if you want reliable savings and set premiums for long-term planning.

  • Guaranteed life insurance offers coverage without any medical exams, ensuring you’re accepted regardless of your health status. It’s best for people with serious medical issues and older adults who want basic coverage.

  • Universal, or adjustable, life insurance has the most flexibility of any policy. During the policy term, you can adjust premiums, death benefits, and cash value. Its cash value component grows based on fluctuating interest rates, making it ideal for people who want control over their policies and the potential for investment growth.

  • Variable life insurance offers you a greater range in handling the policy’s cash value portion. It lets you invest the cash value in a wide variety of investment options, including stocks, bonds, and mutual funds. It’s a good option if you’re comfortable with a little risk and want to make money.

  • Variable-universal life insurance combines the benefits of both universal/adjustable life insurance and variable life insurance into one policy. It’s a great option if you want flexibility and a lot of cash value growth potential.

Other types of life insurance

Not everyone wants a more traditional life insurance policy, and you may want a rider to expand your coverage. If you’re looking for other life insurance policies that serve more specific needs, including accidental death and dismemberment, group, credit, and joint life insurance, here are some options.

  • Accidental death and dismemberment life insurance provides financial benefits to your beneficiaries if you die or experience severe injuries from an accident, offering specific payouts for these injuries. You add this additional coverage to your standard life insurance policy.

  • You can secure group life insurance from your employer. It covers a group of people under one policy, often leading to lower premiums, making it a good option if you want affordable life insurance without the hassle.

  • Credit life insurance pays for specific outstanding debts, such as loans and credit card balances, in the event of your passing. It’s a good option if you have significant financial obligations and want to protect your loved ones from bearing the financial burden.

  • Joint life insurance covers two people under one policy, typically partners or spouses, paying a death benefit when someone dies. It’s typically more affordable than two separate policies and is a good option to protect your family’s financial security.

  • Various life insurance riders are available, depending on your chosen life insurance company. Some common riders include guaranteed insurability, waiver of premium, long-term care, return of premium, and family income riders. Ask your insurance agent if any of these riders make sense for you.

Costs of different types of life insurance

Various factors affect the cost of life insurance, regardless of the type you buy. Your age, gender, lifestyle, health, occupation, coverage amount, term length, and family’s medical history all affect how much you pay. Term policies are almost always more affordable, while whole life insurance policies are higher investments that offer more stability.

The table below shows how much your age, gender, and term length can affect your costs for a $500,000 policy.

Age and Gender
20-Year Term Monthly Premium
30-Year Term Monthly Premium
Whole Life Monthly Premium
25-year-old woman$15$22$193
25-year-old man$18$28$235
35-year-old woman$17$29$267
35-year-old man$20$34$324
45-year-old woman$36$59$395
45-year-old man$45$77$485
55-year-old woman$83$174$602
55-year-old man$113$229$723
Source: Insurify partner SelectQuote provided these averages based on 20-year and 30-year term policies and whole life policies from one or more of the companies SelectQuote represents. Rates are for men and women in excellent health. Premiums may vary depending on individual health, issuing company, and other factors.

How to choose the type of life insurance that’s best for you

When choosing the best life insurance for you, consider your family’s needs and budget, and make sure the policy aligns with your future goals. Here are some key factors to keep in mind when deciding on a policy:[3]

  • Length of coverage: Think about how long you want your policy to last. This determines whether you need term or permanent life insurance. Consider financial goals and obligations, like future education for your children, your mortgage, or long-term estate planning.

  • Budget constraints: Consider your budget and determine how much you can afford in monthly premiums. This helps to inform what types of policies you can buy.

  • Investment objectives: Think about your financial goals for the future. If you want to grow your wealth, consider a policy with a cash value option.

  • Family needs: Consider your family’s needs and how much money they would need to continue on without you. Think about your children’s future education, your mortgage, and any outstanding debts you might have.

Before buying any policy, it’s important to compare your options. Compare quotes and policies from at least three different companies to find the right company that aligns with your goals.

Different types of life insurance FAQs

Life insurance can be confusing, and buying a policy is an important financial decision. Check out these answers to some of the most commonly asked questions about the different types of life insurance.

  • What are the main types of life insurance?

    The main types of life insurance are term life insurance and permanent life insurance. Term life insurance covers a set period, while permanent life insurance covers your whole life. Term coverage is typically more affordable than permanent life insurance.

  • Which is better, term or whole life insurance?

    Neither term nor whole life insurance is inherently better than the other. It depends on you and your family’s needs. Term life insurance is a good option if you want affordable, temporary coverage, while whole life insurance is a good option if you want lifelong coverage and cash value.

  • How much does a $1 million life insurance policy cost per month?

    A $1 million life insurance policy’s cost will depend on various factors, including your age, health, gender, lifestyle, occupation, coverage amount, term length, and your family’s medical history.

  • What are the types of term life insurance?

    The main types of term life insurance are level, decreasing, convertible, and renewable. Each offers different benefits.

  • What are the disadvantages of universal life insurance?

    Universal life insurance requires quite a bit of attention to manage. It’s possible to lose money due to its variable cash growth, resulting in more expensive premiums.

Sources

  1. III. "What are the principal types of life insurance?."
  2. III. "What are the different types of permanent life insurance policies?."
  3. III. "How to choose the right type of life insurance."
Danny Smith
Danny Smith

Danny is a Brooklyn-based writer with a producer’s license for property and casualty insurance. A former editor at Insurify, he specializes in auto, home, and pet insurance. He works to translate his insurance expertise into digestible, easy-to-understand content for drivers, homeowners, and pet owners alike.

Danny has been a contributor at Insurify since March 2022.

Sara Getman
Edited bySara GetmanAssociate Editor
Sara Getman
Sara GetmanAssociate Editor

Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.

Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.

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