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13 types of life insurance: Which is right for you?
Evaluate your options to find the ideal policy for you and your family.
Figuring out the amount of coverage, how much you want to leave to your beneficiaries and what additional coverage you might need depends on your family and financial situation. The right life insurance policy helps ensure your loved ones are taken care of after you’re gone.
Explore your coverage options to find the policy that is best suited to you and your family.
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What are the different types of life insurance?
There are a number of different types of life insurance — which is one of the reasons it can be difficult to nail down the best policy for your needs. Here are the key features of each policy type to help you compare your options.
Types of life insurance
Features of different life insurance policies
Term life
What is it?
Term life insurance offers coverage for a predetermined length of time. Terms come in varying lengths and offer a one-time death benefit payment to beneficiaries if you pass away during the term of the policy.
How does it work?
The policyholder chooses the term length — typically between five and 30 years — and the coverage amount. You pay a set premium to maintain coverage over the length of the term. If you live past the end of the term, you can either renew or surrender the policy.
Pros and cons
Pros
- It’s the simplest and cheapest policy.
Cons
- If you outlive your policy and still need insurance, you’ll need to buy another policy — and pay higher rates.
Is it right for me?
Term life insurance is often considered to be the most affordable. While fairly straightforward, this type of life insurance doesn’t build cash value and premiums may be lower or higher depending on your age, health, gender and occupation.
Back to topWhole life
What is it?
Whole life insurance offers fixed premiums, lifelong coverage and cash value accumulation. It also has the potential to earn dividends, depending on your provider.
How does it work?
Premiums are paid monthly, bimonthly or annually and coverage is guaranteed. You can build cash value over time and borrow against the policy’s death benefit. When you die, your beneficiaries receive a fixed death benefit.
Pros and cons
Pros
- It offers lifelong protection and becomes a cash asset over time. It also has predictable premiums, so you know exactly how much you’ll pay each month.
Cons
- It’s significantly more expensive than term life insurance.
Is it right for me?
As is the case for many forms of life insurance, the cost of premiums depends on the policyholder. Whole life insurance is more expensive than term life insurance but offers fixed premiums, builds cash value and may earn dividends.
Back to topUniversal life
What is it?
Like whole life insurance, universal life offers lifelong coverage and cash value accumulation with a unique feature: flexible premiums.
How does it work?
While offering many of the same features as whole life insurance, including cash value accumulation and lifelong coverage, universal policies are unique in that they offer flexible premiums. You can adjust how much you pay into your policy as your finances change, and you can use the cash value to cover premiums later in life.
Pros and cons
Pros
- You have the freedom to adjust your policy’s premium, coverage and death benefit amount.
Cons
- Your insurer will cap your cash value returns, so double-check the “participation rate” before signing up.
Is it right for me?
A permanent form of life insurance offers unique features but requires a more hands-on approach than term and whole life insurance. You must monitor your policy’s cash value to ensure it’s enough to keep your coverage intact, and interest rates on your savings fluctuate over time.
Universal life insurance guide
Back to topVariable life
What is it?
Variable life insurance is a type of permanent policy that offers policyholders the opportunity to place their accumulated cash value into a number of smaller investment accounts.
How does it work?
The policyholder can select between a number of subaccounts to invest the cash value of their policy. The insurance company manages these accounts, and if profitable, you can use the money to cover premiums later.
Pros and cons
Pros
- Your insurer will present you with a portfolio of accounts, and you can choose which ones you’d like to invest in.
Cons
- It can be risky, which is why it’s usually offered by prospectus only. You need to be more hands-on with this policy, too.
Is it right for me?
Variable life insurance is best suited for those who are comfortable investing. Taking out a variable life insurance policy can be a gamble — if your investments do well, you may be able to cover the cost of premiums. But if they do poorly, your death benefit may be reduced or wiped out altogether.
Back to topVariable universal life
What is it?
Variable universal life insurance is a form of permanent life insurance that offers flexible premiums and the investment of accumulated cash value.
How does it work?
Variable universal life insurance offers the policyholder the ability to invest cash value while keeping the savings component and death benefit of the policy separate. Cash value may be reduced as a result of negative returns and higher premiums may be needed to rebuild the cash value of the policy.
Pros and cons
Pros
- Along with flexible premiums, this hybrid policy gives you the ability to invest your cash value in the investments of your choice.
Cons
- If those investments do poorly, your premiums might rise. You’ll need to be comfortable with that, and have a high risk tolerance.
Is it right for me?
Variable universal life insurance offers flexible premiums and the potential to earn returns, but if your investments do poorly, your premiums may rise. This policy is best reserved for those who have prior investment experience.
Back to topOther types of life insurance
Simplified issue life
What is it?
Simplified life insurance is a no-medical-exam policy that offers both term and permanent policies for coverage at a higher premium.
How does it work?
Applicants answer a medical questionnaire instead of undergoing a medical exam, but approval isn’t guaranteed. Premiums tend to be expensive and coverage is limited.
Pros and cons
Pros
- There’s no medical exam, and policies can be issued within hours or days (rather than weeks).
Cons
- It’s very expensive, and coverage is limited to small amounts.
Is it right for me?
If you’re looking for quick, straightforward coverage without taking a medical exam, simplified issue life insurance could be a sensible choice. But premiums are expensive and policies often don’t offer much room for customization.
Simplified life insurance guide
Back to topJoint life
What is it?
Joint life insurance is a single policy that covers two people, available as either a permanent or term policy.
How does it work?
Joint policies come in two forms: first- and second-to-die. In a first-to-die joint policy, the policy is paid out when one spouse dies, with the death benefit supports the surviving spouse. In a second-to-die policy, the policy is paid out after both spouses have died, with the death benefit supporting a beneficiary.
Pros and cons
Pros
- It’s a convenient way to cover two people under one policy, and you can choose the condition that suits you: first-to-die or second-to-die.
Cons
- You may pay higher premiums if one partner is in poor health. Plus, in first-to-die plans, the surviving spouse will be left uninsured.
Is it right for me?
Joint life insurance is well-suited to healthy couples who want to streamline and simplify their coverage with a single policy.
Joint issue life insurance guide
Back to topGroup life
What is it?
Group life insurance is a form of term life insurance coverage provided by an employer at little to no cost for employees.
How does it work?
Employers purchase group life insurance for their employees and retain the master contract. Employees are either automatically enrolled or must choose to opt in. Premiums are covered by the employer or are deducted directly from the employee’s monthly earnings. Coverage is guaranteed but minimal.
Pros and cons
Pros
- It’s cheap or free, and you can get coverage even if you have a health condition.
Cons
- The coverage is limited, and it isn’t portable. If you leave your job, you’ll need to explore other insurance options.
Is it right for me?
Group life insurance is a convenient way to access a policy at little to no cost, but coverage is often minimal and you could stand to lose your policy if you leave your employer. Bump up your coverage with supplemental insurance or take out an individual policy if you don’t plan on sticking with your company long term.
Back to topCredit life
What is it?
Credit life insurance pays off your outstanding debts when you pass away, with the value of the policy going directly to your creditors.
How does it work?
This form of life insurance is typically offered when you take out a loan, such as a home loan, car loan or line of credit. Unlike term and whole life policies, the value of credit life insurance doesn’t go to your beneficiaries, but to your creditors. The value of the policy dwindles over time as the outstanding balance on your loan decreases.
Pros and cons
Pros
- It takes care of your outstanding debts when you die.
Cons
- Your beneficiaries won’t get the proceeds from your policy.
Is it right for me?
Credit life insurance is marketed as a method of protecting your heirs from inheriting your debt, but the policy payout from a term of whole life policy is capable of providing the same coverage. Credit life insurance coverage decreases over time while premiums remain steady, so consider alternative policy options before you apply.
Back to topAD&D insurance
What is it?
Accidental death and dismemberment (AD&D), is a limited form of life insurance that covers you in the event of an accident.
How does it work?
Should you be involved in a fatal accident, this policy will pay out to its designated beneficiaries. If you’re injured and lose a body part or the ability to see, hear, or speak, the policy will pay out a portion of the full benefit.
Pros and cons
Pros
- Accidents happen, so this policy offers peace of mind – and money if you’re injured in one.
Cons
- Depending on your injury, it may only pay out a portion of the benefit. Plus, each insurer has its own set of exclusions, so read the fine print carefully.
Is it right for me?
This form of life insurance is available as both a stand alone policy or as a policy rider. As a stand alone policy, it’s far from comprehensive, but as a policy rider, it could provide added protection and peace of mind.
Accidental death & dismemberment insurance guide
Back to topSupplemental life
What is it?
Supplemental life insurance is a form of additional insurance you can purchase to bump up existing coverage through an employer.
How does it work?
You can opt to purchase supplemental insurance by having premiums deducted from your paycheck. There’s typically no medical exam but if you leave your job or retire, you’ll likely lose your coverage.
Pros
- There’s no medical exam, and you can usually have the premiums deducted from your paycheck – which makes it easy to stay on top of your payments.
Cons
- Like group life insurance, it’s tied to your place of employment.
Is it right for me?
The group insurance offered and paid for by employers may not be enough to cover your needs — especially if you have a large family. Consider supplemental insurance if you’re insured through your employer and plan to stick with your company.
Supplemental life insurance guide
Back to topFinal expense life
What is it?
Also called burial insurance, final expense life insurance is designed to cover end of life medical bills and funeral expenses, typically topping out at $20,000.
How does it work?
Final expense insurance often doesn’t require a medical exam. Instead, applicants are asked to answer a medical questionnaire. The policy is open as long as you pay the premium.
Pros
- The coverage is usually limited to $20,000 or less.
Cons
- Like group life insurance, it’s tied to your place of employment.
Is it right for me?
If you already have permanent life insurance, you don’t need to worry about final expense insurance — you’re covered. Final expense life insurance is best if you don’t have a policy, but don’t want to rely on their loved ones to provide for their burial expenses.
Funeral insurance vs life insurance
Back to topMortgage life
What is it?
Mortgage life insurance pays off the remainder of your mortgage after you die.
How does it work?
After purchasing a home, your lender may offer you mortgage life insurance. Approval rates are high but premiums are expensive and policies are non-transferable, so you’ll lose your coverage if you move.
Pros
- It’s ideal for homeowners who have a pre-existing medical condition that may disqualify them from coverage.
Cons
- The premiums are high and policies are non-transferable.
Is it right for me?
It may be more affordable to purchase a term or whole policy, but if you’re having trouble securing coverage elsewhere due to a pre-existing medical condition, mortgage life insurance may be a good call.
Back to topCompare life insurance companies
How are life insurance policies underwritten?
Underwriting is how your insurer determines your risk level – and how much you should pay for coverage.
When it comes to underwriting, there are three types of policies:
- Fully underwritten policies require you to take a medical exam and fill out a comprehensive application about your health, your family’s medical history, and your lifestyle. Since this approach gives your insurer a complete picture of your health, it usually translates to cheaper premiums.
- Simplified issue policies skip the medical exam, but require the health questionnaire. Depending on your answers, you might be turned down.
- Guaranteed issue policies are just that: guaranteed. They forgo both the medical exam and health questionnaire, and anyone can get coverage – making them the most expensive way to buy life insurance.
Bottom line
When perusing your life insurance options, there are a number of things to consider, including terms, rates, premiums and coverage maximums.
Dig for details when you’re choosing a policy. Review your life insurance options with multiple providers before you apply.
Frequently asked questions.
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