From the Learning Center

Different Types of Life Insurance: Which Is Right for You?

By Cameron Goodwin·October 19, 2022·6 Minute Read

In this Article

Have you reached the point in your life where you feel ready to buy a life insurance policy? Congrats! That probably means you’ve got loved ones depending on you—maybe a mortgage, a spouse, or kids. If you’ve started researching your options, it won’t be news to you that there are lots of different types of life insurance policies to choose from, each one with unique features.

Your head may be spinning, but fear not. You’ve come to the right place. This article will help you understand the different types of life insurance and break down the key features of each one.

The 3 Most Common Types of Life Insurance

Let’s get down to it. There are many different types of life insurance policies, but this section focuses on the three most purchased life insurance policies. 

Term Life Insurance

You’ve probably heard of term life insurance before. It is the type of insurance most people buy, likely because it offers straightforward coverage and is usually the least expensive life insurance option.

How Does Term Life Insurance Work?

If you want to help provide your family with a little financial protection but want to keep your life insurance experience simple, you might want to look into term life insurance. In fact, Financial experts Suze Orman and Dave Ramsey both recommend term life insurance. When you buy a term life insurance policy, you agree to pay a premium for a period of time (usually between ten and thirty years). That period of time is “the term.” Hence, term life insurance. If you pass away while the policy is in force, your beneficiaries will receive the death benefit. The death benefit is equal to the coverage amount you choose when selecting your policy options (like $500,000, as a common example).

Some life insurance companies require applicants to get a medical exam, submit a blood sample, or do an underwriting interview—all of which could take a couple weeks. If you are looking for coverage sooner than later, or simply don’t have time for a medical exam, you’re in luck. Some companies do offer no-medical exam term life insurance. Some may even offer a same-day eligibility decision. 

Some of the benefits of term life policies include: 

Other things to know and consider: 

  • A term life insurance policy is only good for the length of the term.
  • Term life insurance does not have cash value. 

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Whole Life Insurance 

Whole life insurance is a type of permanent coverage. A permanent life insurance policy is designed to last a lifetime (as long as you make the premium payments). Whole life insurance, like term life insurance, pays out a death benefit, and can also include a cash value component. 

How Does Whole Life Insurance Work?

If you pay your premiums, your whole life policy will stay in force for the duration of your life. Most whole life policies feature a cash value component. The earned interest rate is set by the insurer, and it’s guaranteed. Whole life insurance might be attractive to people who have lifelong dependents or want a life insurance policy that never expires. The tradeoff is cost. Whole life insurance policies can cost five to fifteen times more than a term life insurance policy with the same amount of coverage.

Some of the benefits of whole life insurance include: 

  • The policy can last your entire lifetime (if you pay the premium).
  • Most whole life insurance policies have a cash value component. 

Other things to know and consider: 

  • Because of the cash value component and lifelong coverage, the price for whole life insurance is usually significantly higher than that of term life insurance. 

Universal Life Insurance 

If you’re looking for permanent coverage, but you’re not so sure a whole life insurance policy is for you, consider universal life insurance. And get ready to dig in because there are three different types of universal life insurance policies to choose from. 

How Does Universal Life Insurance Work?

All three types of universal life insurance policies have a cash value component. When you pay your premium, it goes toward the cash value and the death benefit of your policy. The big difference between whole life and universal life insurance is that the latter can offer flexible premiums and adjustable death benefits. If you decide to pay a lower premium, the difference needed to support the death benefit comes out of your policy’s cash value.

Listed below are the three types of universal life insurance (and the unique features of each one):

Indexed Universal Life Insurance (IUL): The cash value account of an indexed IUL has a minimum guaranteed interest rate. The interest credited to the policy is based on percentage changes in selected indices which may be subject to a cap, floor, and/or participation rate. There is no actual investing in the stock market, and the zero percent floor of these policies means there is no loss of premium due to a negative percentage change in the index.

Guaranteed Universal Life Insurance (GUL): Similar to a whole life plan, the death benefit can be guaranteed for the life of the insured, however the cash value in the policy is not guaranteed.

Variable Universal Life Insurance (VUL): If you have a VUL policy, you can invest the cash value into separate accounts— mutual funds specifically for life insurance policies. Essentially, you have the opportunity to invest your cash value into the stock market. Your cash value can increase and decrease based on the performance of the separate accounts you choose.

Are There Other Types of Life Insurance?

Look at you, making headway on your quest to understand the different types of life insurance options! Now that you’ve got the basics down (term life, whole life, and universal), let’s cover some of the lesser-known types of life insurance. Yep, there’s more—but we’ll keep it simple. 

Final Expense Insurance

Available as both simplified issue life insurance and guaranteed issue life insurance, final expense insurance (also called burial insurance) offers those who are older or have health issues the opportunity to purchase life insurance without a medical exam. The premiums tend to be high, and the coverage low, but if you are a senior looking for a way to cover funeral costs, or if you are shopping around for life insurance for your older parents, final expense insurance might be worth considering. 

Joint Life Insurance

While most couples opt to buy individual life insurance policies, others will purchase joint life insurance instead. A joint policy is one life insurance policy that covers two people. If you can’t budget two life insurance policies or if one person in your partnership might not qualify for coverage alone, a joint life insurance policy could be the right option for you.

Consider Starting With a Term Life Insurance Quote

If you are feeling a bit overwhelmed after learning about some of the different types of life insurance, take a few deep breaths. Life insurance does not have to be complicated or stressful. Term life insurance may be a good place to start for two reasons: it is simple and it is the least expensive. 

With rates from $11 per month, an online application that can be filled out in less than ten minutes, and an instant coverage decision for most applicants, Bestow makes term life insurance easy. There is no medical exam. No underwriting interview. No long wait for a decision. Start with a fast, free quote and find out just how affordable life insurance can be. 

Key Takeaways

  • Though there are several different types of life insurance policies to choose from, the most popular are term life insurance, whole life insurance, and universal life insurance.
  • Term life insurance is the least expensive type of life insurance, partly because it doesn't feature the cash value component many types of permanent life insurance policies offer.
  • While both are types of permanent policies, the big difference between whole life and universal life insurance is that the latter can offer flexible premiums and adjustable death benefits. 

The information provided is not intended to offer any tax, legal or financial advice. It is always a good idea to consult your tax, legal and financial advisors regarding your specific situation.