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Compare every type of life insurance policy
Learn about 13 types of life insurance to find the ideal policy for you.
This article was fact-checked and reviewed by Andrew Flueckiger, a licensed insurance agent and Certified Insurance Counselor. Content has been updated for 2020.
You have tons of life insurance policies to choose from, and each one is tailored to different needs and budgets. To help you compare your life insurance options, it’s worth learning about the key features of each policy type.
Types of life insurance
Compare major life insurance policies side by side
Term life
What is it?
Term life insurance offers coverage for a set period 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
- 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 the most affordable type of policy, and the best choice for most people who have temporary needs to cover — like a mortgage, student loan debt or college tuition.
Whole life
What is it?
Whole life insurance offers fixed premiums, lifelong coverage and cash value accumulation. It also has the potential to earn dividends, if you’re with a mutual life insurance company.
How does it work?
Every time you pay your premium, a portion is invested to give your policy a cash value. That cash value grows over time and once you’ve accumulated enough, you can start to take loans against your policy. When you die, your beneficiaries receive a guaranteed death benefit.
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?
If you have lifelong financial obligations or want to treat life insurance as an estate planning tool, a whole life insurance might suit you. But keep in mind that it’s often six to ten times more expensive than term life insurance, so you can expect to pay higher premiums.
Ask an expert: What’s the best way to decide between a term and whole policy?
Choosing between term and whole life depends on why you want life insurance. It’s critical to ask the question: “What is the money going to be used for?” There are many types of life insurance, and they all work differently. For that reason, it’s important to select the policy that’s best suited to achieve the planned objective.
For example, if you want to cover a temporary liability, such as a mortgage or other debt or income replacement, term insurance is by far the best type. However, if you have a permanent objective, such as final expenses or estate planning, a permanent policy is a better fit.
In short, if your need is temporary, go term. If your need is permanent, buy whole life.
Universal 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
- 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?
Universal 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. It’s best for seasoned investors with a high risk tolerance.
Universal life insurance guide
Variable 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
- 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, which means the returns aren’t guaranteed. You need to be more hands-on with this policy, too.
Is it right for me?
Variable life insurance is best suited to experienced investors who are comfortable with risk. 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.
Variable 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
- 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 and are comfortable with high-risk investments.
Variable universal life insurance guide
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
- 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 need coverage right now or want to avoid taking a medical exam, simplified issue life insurance is a good choice. But premiums are expensive and policies often don’t offer much room for customization.
Simplified life insurance guide
Joint 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 death benefit is paid to the surviving spouse when the first spouse dies. In a second-to-die policy, the death benefit is paid out after both spouses have died. This is typically used if the spouses want to make a charitable contribution after they both pass away.
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. If one spouse has a preexisting health condition or a complex family medical history, you might be better off taking out separate individual policies.
Joint issue life insurance guide
Group 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
- It’s cheap or free, and you can get coverage even if you have a health condition.
Cons
- The coverage is limited, and it’s almost never portable. If you leave your job, you’ll need to explore other insurance options.
Is it right for me?
If your employer offers group life insurance as part of its benefits package, it’s worth taking them up on that perk. It’s 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.
Credit 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
- 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 or whole life policy is capable of providing the same coverage. While the premiums stay the same, coverage decreases over time, so consider alternative policy options before you apply.
AD&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
- 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 standalone policy or as a policy rider. As a standalone policy, it’s far from comprehensive, but as a policy rider, it could provide added finanical protection and peace of mind if you get into an accident.
Accidental death & dismemberment insurance guide
Supplemental 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 stay with your company for several years.
Supplemental life insurance guide
Final 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, though some policies can go as high as $50,000. However, though the payouts are designed to be used to pay for a funeral, your beneficiaries can use the payout however they want.
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 active as long as you pay the premium.
Pros
- Gives your survivors money to pay for your funeral, burial and final medical expenses.
- Open to seniors who have a hard time finding standard life insurance.
Cons
- The coverage is usually limited to $50,000 or less, with most policies between $10,000 to $20,000.
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 for seniors who don’t have much in savings but don’t want to burden their loved ones with their funeral and end-of-life costs.
Mortgage 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 a standard life insurance policy.
Cons
- The premiums are high and policies are non-transferable.
- The payout goes to your lender, not your family, and can only be used to pay off your mortgage.
Is it right for me?
A simple term life policy is the more flexible option. But if you’re having trouble securing coverage due to a preexisting medical condition, mortgage life insurance is a decent alternative.
Compare top life insurance companies
How to choose a life insurance policy
The best life insurance policy for you comes down to your individual needs and reasons for getting coverage.
When you’re narrowing down your life insurance options, ask yourself these questions:
- Do my financial obligations have an end date? If you’ll only have financial dependents or debt for a certain amount of time, term life insurance may be a good fit.
- Do I want to treat my life insurance policy as a cash asset? If so, look into a permanent life insurance policy that builds cash value — like whole, universal or variable life.
- Do I want to take a medical exam? Traditionally underwritten policies are almost always cheaper. But if you’d prefer not to take a medical exam — or you have a serious health condition that may disqualify you from coverage — you can opt for a no-medical exam policy.
- Do I only need life insurance to cover my funeral costs? A final expense policy is one way to ensure your loved ones aren’t burdened with your funeral, burial and end-of-life expenses when you die.
- Do I need to cover two people under the same policy? Explore first-to-die or second-to-die life insurance, joint policies that protect two people — typically spouses.
- Do I have life insurance through work? If your employer offers a subsidized policy as part of your benefits package, it’s worth taking them up on it. But you may want to purchase additional coverage on your own with a supplemental policy.
Key life insurance policy terms
These are some of the terms you might come across when you’re researching life insurance policies:
- Beneficiary. The person, people or organizations that will receive the death benefit payout from your policy when you die.
- Cash value. A tax-deferred savings account that earns interest over time according to a rate set by your insurer. It’s a key part of all permanent policies.
- Death benefit. The amount of money paid out to your beneficiaries when you die. This is the same as the face value as the policy minus any cash withdrawals that haven’t been repaid.
- Face value. Also called the coverage amount, this is the value of your policy. It’s directly linked to the death benefit. If you purchase a policy worth $250,000, your beneficiaries will receive $250,000 when you die.
- Premium. The fee you pay to keep your policy in force.
- Term. The period of time your policy is active — like 10, 20 or 30 years.
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 and higher coverage amounts.
- Simplified issue policies skip the medical exam, but require the health questionnaire. Depending on your answers, you might be turned down. You may find slightly higher rates and lower coverage amounts than fully underwritten policies.
- Guaranteed issue policies offer just that: guaranteed approval. They forgo both the medical exam and health questionnaire, and anyone can get coverage — making them the most expensive way to buy life insurance, with high premiums and low coverage maximums.
Bottom line
When you’re shopping for life insurance, you have two main types of coverage to choose from: term and permanent. The best policy for you is the one that suits your financial situation. Term life insurance covers temporary needs, while permanent policies last a lifetime and become a cash asset over time. Once you’ve picked a policy type, compare life insurance companies to ensure you’re getting a good deal.
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