Explanation of Types of Life Insurance
There are five main types of life insurance: Term life insurance, whole life insurance, universal life insurance, variable life insurance, and final expense life insurance. Each type of life insurance is designed to meet a specific need for coverage. For example, term life insurance is aimed at those who only need coverage for a certain number of years, while whole life insurance is aimed at those who need outright, lifetime coverage.
What Are the Different Types of Life Insurance?
Different types of life insurance policies vary in length of coverage, complexity, amount of coverage, cash value, and other features.
Go to the section using the links below to learn more about:
Term life insurance
Life insurance
Universal life insurance
Variable life insurance
Final cost life insurance
Other types of life insurance
Term Life Insurance
Term life insurance is generally more affordable than permanent life insurance. It provides cover for a specified number of years and pays out until your policy has expired and you have paid the premium. You can lock in your rate for the entire term, making budgeting and planning easier.
At the end of the term and subject to available product options, you will have the option to renew your policy at a revised rate. However, you can usually only extend the term of your life insurance on an annual basis – not for another term. Your new rate will be based on your age and health at the time of renewal, and you may or may not need a medical exam to get coverage. You may also be able to convert your term life insurance to whole life at the end of your term.
Life Insurance
Whole life insurance is a type of permanent life insurance that provides cover for your entire life and pays you a benefit no matter when you die – as long as you pay your bill. Whole life insurance also includes a savings component into which part of your premium is paid. The savings component has a fixed interest rate that builds cash value over time, which is part of the reason why whole life policies typically cost more than term policies with similar coverage.
The cash value of your policy will not affect the death benefit paid when you die. However, if it equals your death benefit amount by a specified age (usually 100 or 120 years), your insurer will terminate your policy and pay out the cover amount.
If you don’t expect to live to be 100 years old, you can choose some cash as a life insurance loan. There is usually no credit check required and the loan approval process is minimal. You will repay the loan with interest, or if you die before the funds are repaid, the remaining loan amount and interest will be deducted from your paycheck to your beneficiaries.
Universal Life Insurance
Universal life insurance is another permanent life insurance option that provides coverage for your entire life as long as you pay the premiums. It is sometimes called adjustable life insurance because it offers more flexibility than a whole life policy. For example, universal life policies allow you to increase or decrease your death benefit and even adjust or skip your monthly premium (within certain limits).
Like whole life, a universal life policy has a savings component that grows and allows you to borrow. However, a universal life policy works differently than a whole life policy in two key ways:
The interest rate on the cash value of universal life insurance is not fixed. You will be guaranteed a minimum interest rate, but generally the rate at which your cash value is built can change over time based on market conditions.
The cash value of your universal life insurance policy can eventually grow and result in a zero-cost policy where all premiums are paid from the accumulated value.
Variable Life Insurance†Read related information for this claim.
Variable life insurance is a riskier type of permanent life insurance. The joint proposal of variable life insurance is built on two parts:
Nominal Death Benefit: As with whole life and universal life, when you buy a variable life policy, you choose a fixed death benefit that will be paid out after your death if you pay premiums.
Variable cash value: Your cash value will rise and fall based on your payments and the performance of your chosen investments. Unlike whole life, your variable life cash value can be part of your death benefit.
The greater range of investment options offered by variable life insurance means that it can benefit your beneficiaries more in the long run when you die – especially if you’re a savvy investor. But it also opens you up to much higher risk, fees and costs than whole life or universal life insurance.
Final Cost Life Insurance
Final expense insurance, also known as burial or funeral insurance, is a type of whole life insurance that offers a smaller, more affordable death benefit designed to help cover your end-of-life expenses, such as funeral costs, medical bills or outstanding debts. While other types of life insurance may have age and health requirements, it may be easier for older or less healthy individuals to qualify for them. The cash value of a final cost policy works just like a whole life insurance policy, its value builds over time at a fixed rate.
Other Types of Life Insurance
Indexed universal life insurance is a type of permanent life insurance with a cash value that grows based on a stock market index such as the S&P 500 or NASDAQ. You can adjust your premiums as the policy’s cash value increases, which can result in a cash value policy that pays the premiums.
Simplified life insurance is a type of life insurance that does not require a medical examination. This can be beneficial for healthy individuals who need a policy quickly, as the approval process can be much faster. Depending on the insurer and policy, coverage can start in minutes to days, compared to a standard life insurance policy that can take a month or more. This type of life insurance is generally more expensive and could have a lower amount of coverage due to the increased risk the insurer takes by simplifying the application process.
Instant life insurance is a specific type of simplified policy that you can apply for online and often get a decision within minutes. Instant life insurance is similar to the simplified issue, but can have higher and more affordable coverage options.
Guaranteed life insurance is a type of policy that does not ask health questions and your application cannot be refused.
Other types of non-traditional life insurance include:
Supplemental life insurance can provide additional coverage beyond what your company’s group life insurance offers. You can purchase it from your employer (if offered) or from a private insurance company for an additional fee.
Survivor life insurance covers two people on one policy that pays a death benefit once both policyholders die. A type of joint life insurance, probate contracts can be part of an estate plan and a way to leave an inheritance for heirs.
Declining term life insurance provides coverage with a death benefit that decreases over time, making the policy more affordable than a standard policy as the payout decreases.
AD&D insurance is a category of life insurance that pays out only if the insured suffers an accident that causes death or serious injury, such as loss of limbs, vision, or paralysis.
What Type of Life Insurance Is Best for Me?
When choosing the type of life insurance that’s best for you, consider where you are in life and ask yourself these questions:
what is your age
Do you have people who depend on your income who would suffer if you were no longer around?
What are your investment and estate planning goals, or do you just want your final expenses covered?
Consider what coverage you’ll need with Progressive’s life insurance calculator and how much you can afford to pay each month.
