Life insurance can serve as a lifeline for your loved ones in the event of your death. However, with the long list of life insurance options, finding the right policy for your situation can feel overwhelming.
So, whether you’re looking for affordable term coverage or a lifelong policy that offers financial growth opportunities, you should be able to find something that works in the following life insurance types:
- Term life insurance
- Whole life insurance
- Universal life insurance
- Indexed universal life insurance
- Variable life insurance
- Guaranteed issue life insurance
- Final expense life insurance
- Group life insurance
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Pacific Life
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Transamerica
Cost competitiveness
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Term life insurance
Key features of term life insurance
- Policy length: Typically up to 40 years
- Cash value: None
- Death benefit: Fixed
- Medical exam requirements: Often but not always required
- Ideal for ages: 18 to 65 years old
How term life insurance works
Term life insurance provides coverage for a specified period, typically ranging from 10 to 30 years. However, insurers may offer term policies as short as one year and as long as 40 years. If you die while your policy is in force, your beneficiaries will receive the policy’s death benefit (although some exclusions may apply, such as dying by suicide in the first few years of your policy’s term).
You’ll generally pay fixed premiums for a fixed death benefit (or coverage amount). However, your premium payments and death benefit may vary by the type of term life insurance you have, such as:
- Decreasing: Your death benefit goes down over time, and premiums are typically lower than traditional term policies.
- Renewable: At the end of your policy’s coverage period, you can renew your policy, typically at a higher premium.
- Convertible: It gives you the option of converting your term policy into a permanent one.
- Return of premium: This allows you to recoup a portion or all of the premiums you paid if you outlive your coverage period.
The typical coverage amounts for term policies range from $100,000 to several million dollars. However, the amount you’ll need depends on your financial situation — an online life insurance calculator can help you estimate how much you should get.
Cost of term life insurance
Term life insurance premiums are typically lower than permanent life insurance. Here is the average cost of a 20-year term life insurance policy with a $500,000 death benefit:
- 40-year-old male: $28 per month
- 40-year-old female: $24 per month
Typical riders available
- Term conversion: Allows you to convert your policy into permanent life insurance
- Waiver of premium: Allows you to halt premium payments if you develop certain disabilities
- Guaranteed renewability: Lets you skip any medical exams and questionnaires you’d normally have to undergo to renew your policy
- Accelerated death benefit: Provides access to your death benefit if you are diagnosed with certain serious illnesses
- Accidental death: Increases your policy’s death benefit if your death is accidental
- Charitable benefit: Sends your death benefit to the charity of your choice if you pass
Who is term life insurance best for?
Term life insurance is an excellent option for younger individuals and families with plans to build a college fund and loans such as mortgages.
Pros and cons of term life insurance
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Whole life insurance
Key features of whole life insurance
- Policy length: Lifetime
- Cash value: Available
- Death benefit: Fixed
- Medical exam requirements: Required (unless you opt for simplified or guaranteed issue whole life insurance)
- Ideal for ages: 18 to 65 years old
How whole life insurance works
Whole life insurance offers coverage for your entire life as long as you pay your premiums. For this type of policy, you’ll generally find coverage amounts ranging from $50,000 to millions of dollars.
Your premium and death benefit generally stay the same throughout your policy. However, some policies, like limited pay or indeterminate premium whole life insurance, have different or adjustable payment schedules.
Aside from policy length, a feature distinguishing a permanent whole life policy from a term life policy is its cash value. With this feature, your insurer puts a portion of your premium in an investment subaccount that grows tax-deferred.
A whole life policy’s cash value typically grows at a guaranteed fixed interest rate, so you usually don’t have to worry about market volatility impacting your cash value. Also, if you have a “participating” policy, you might earn dividends on your investments if your insurance company is profitable in a given year.
Whole life policies present certain downsides that you don’t face with other life insurance types — mainly, premiums tend to be higher than all other policy types, and cash value returns can be lower than what you’d get from universal and variable life policies.
Cost of whole life insurance
Whole life insurance tends to have the highest premiums of all policy types because of its guaranteed death benefit and fixed cash value growth. Here are the average monthly rates for a $500,000 whole life policy:
- 40-year-old male: $564 per month
- 40-year-old female: $506 per month
Typical riders available
- Waiver of premium: Allows you to halt premium payments if you develop certain disabilities
- Accelerated death benefit: Provides access to your death benefit if you are diagnosed with certain serious illnesses
- Guaranteed insurability: Allows you to periodically increase your policy’s death benefit without requiring a medical exam or new evidence of insurability
- Accidental death: Increases your policy’s death benefit if your death is accidental
Who is whole life insurance best for?
While whole life insurance is the most common type of permanent life insurance, it’s also the most expensive. So, a whole life insurance policy may be better for those with a generous budget who want permanent coverage and steady investment growth.
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Universal life insurance
Key features of universal life insurance
- Policy length: Lifetime
- Cash value: Available
- Death benefit: Variable
- Medical exam requirements: Required
- Ideal ages: 18 to 65
How universal life insurance works
Universal life insurance is a type of permanent policy that allows you to adjust your premium, death benefit and payment schedule. Like term and whole life insurance, you can expect to see policy amounts ranging from $50,000 to millions. However, a universal policy’s cash value fluctuates based on market performance, although a minimum guaranteed interest rate may apply.
There are several types of universal life insurance:
- Guaranteed: Has a guaranteed minimum death benefit, fixed interest rates and modifiable premiums
- Variable: Has flexible premium and death benefit amounts, and gives you more control over how you invest your cash value contributions
- Indexed: Offers flexible premiums and death benefits, and invests cash value contributions in subaccounts that track indexes like the S&P 500
While universal policies offer adjustable premiums, you must make minimum payments to keep the policy in force or your policy might lapse. In some cases, if you have a sufficient cash value balance, you can use it to pay your premiums.
Cost of universal life insurance
While a universal life insurance policy may have higher premiums than term policies, its premiums are typically lower than whole life insurance. Here are the average monthly prices for a $1 million universal life policy:
- 40-year-old male: $496 per month
- 40-year-old female: $439 per month
Typical riders available
- Child level-term: Provides term insurance coverage for your children with premiums that don’t change and provides you with a death benefit if they pass away while the policy is in force
- Overloan protection: Keeps your policy from lapsing if you borrow too much from your policy’s cash value
- Enhanced cash value: Designed to give you a higher payout if you surrender your policy within a certain number of years after you buy it
- Level term: Adds term life coverage to your policy with premiums and a death benefit that stay the same
- Accelerated death benefit: Provides access to your death benefit if you are diagnosed with certain serious illnesses
- Guaranteed insurability: Allows you to periodically increase your policy’s death benefit without requiring a medical exam or new evidence of insurability
- Waiver of premium: Allows you to halt premium payments if you develop certain disabilities
Who is universal life insurance best for?
Universal life insurance may appeal to those who value flexible premiums and seek an affordable alternative to whole life insurance.
Pros and cons of universal life insurance
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Indexed universal life insurance
Key features of indexed universal life insurance
- Policy length: Lifetime
- Cash value: Available
- Death benefit: Variable
- Medical exam requirements: Required
- Ideal ages: 18 to 65
How indexed universal life insurance works
An indexed universal life insurance (IUL) policy provides lifelong coverage, typically between $50,000 to millions of dollars.
With an IUL, your insurer allocates a portion of your premiums into a subaccount that tracks equity indexes like the S&P 500. This means that your policy’s cash value is subject to interest rate fluctuations based on the performance of the index.
Although market volatility may impact cash value growth, insurers typically guarantee a minimum interest rate to protect policyholders from market downturns. Conversely, insurers impose market caps to limit your cash value growth potential.
Typical riders available
- Accelerated death benefit: Provides access to your death benefit if you are diagnosed with certain serious illnesses
- Accidental death: Increases your policy’s death benefit if your death is accidental
- Overloan protection: Keeps your policy from lapsing if you borrow too much from your policy’s cash value
- Enhanced cash value: Designed to give you a higher payout if you surrender your policy within a certain number of years after you buy it
- Child level-term: Provides term insurance coverage for your children with premiums that don’t change and provides you with a death benefit if they pass away while the policy is in force
Who is indexed universal life insurance best for?
IULs are well-suited for those with a moderate risk appetite and who would like to benefit from the performance of stock indexes.
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Variable life insurance
Key features of variable life insurance
- Policy length: Lifetime
- Cash value: Available
- Death benefit: Varies depending on how your investments perform
- Medical exam requirements: Required
- Ideal ages: 18 to 65
How variable life insurance works
Variable life insurance policies provide lifelong coverage with coverage amounts ranging from $50,000 to millions. The policy has built-in level premiums and a flexible death benefit with a guaranteed minimum.
What makes variable life insurance unique is that you can choose from an array of investment vehicles — mutual funds, stocks and bonds, for example — to grow your cash value. While you take on more risk, it also opens up the potential for higher returns than whole and universal life insurance.
Variable life insurance should not be confused with variable universal life insurance. Variable policies don’t allow you to adjust your premiums, whereas variable universal policies do.
Cost of variable life insurance
Your variable life insurance costs depend on factors like your coverage amount and risk profile. But, unlike term life insurance, variable life insurance comes with a hefty price tag — generally running five to 15 times the cost of term life.
On top of that, this policy also includes management fees that are usually 1% of your cash value amount.
Typical riders available
- No-lapse: Keeps your policy from lapsing as long as you have your no-lapse rider in place, provided you pay the rider’s premiums and any loans you take out on your policy don’t exceed your policy’s cash surrender value
- Long-term care insurance: Lets you tap into your death benefit to help pay for long-term care costs
- Additional term life insurance: Adds a term life insurance policy to your permanent policy
- Accelerated death benefit: Provides access to your death benefit if you are diagnosed with certain serious illnesses
- Accidental death: Increases your policy’s death benefit if your death is accidental
Who is variable life insurance best for?
Variable life insurance policies are best for those who are comfortable with putting their cash value at risk through stocks, mutual funds and other options.
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Guaranteed issue life insurance
Key features of guaranteed life insurance
- Policy length: Lifetime
- Cash value: None
- Death benefit: Fixed
- Medical exam requirements: Not required
- Ideal ages: 50 to 80
How guaranteed issue life insurance works
Guaranteed issue life insurance operates like a whole life insurance policy, providing coverage from $2,000 to $25,000. Guaranteed issue policies don’t require you to fill out a health questionnaire or take a medical exam for approval, making them appealing to certain people, such as applicants who are older.
However, there may be a waiting period or graded period of two to three years, during which time your beneficiary may not receive your death benefit if you pass away.
Cost of guaranteed issue life insurance
A guaranteed issue life insurance policy may be more expensive per dollar of coverage than other policy types. For a $20,000 death benefit, the average costs of a guaranteed issue life policy are:
- 70-year-old female: $154 per month
- 80-year-old female: $329 per month
Typical riders available
Insurers don’t usually offer riders with guaranteed issue policies.
Who is guaranteed issue life insurance best for?
These policies are a viable option for those with severe health conditions like chronic or terminal illnesses who wouldn’t qualify for a traditional life insurance policy.
Pros and cons of guaranteed issue life insurance
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Final expense life insurance
Key features of final expense life insurance
- Policy length: Lifetime
- Cash value: Available
- Death benefit: Fixed
- Medical exam requirements: None
- Ideal ages: 50 to 85
How final expense life insurance works
As the name suggests, final expense or “burial insurance” settles end-of-life costs like funeral services and burial or cremation expenses. However, beneficiaries can use the policy’s death benefit as they please, like paying off debts or even purchasing a new home.
Final expense insurance coverage amounts typically range from $5,000 to $25,000, which is relatively low compared to other life insurance policies but allows for cheaper premiums. Those coverage amounts are typically available as soon as the policy is active, but some policies may provide a partial payout for the first two years, then switch to a full payout in the third year.
Final expense policies come in two types: a simplified issue policy allowing applicants to answer a few questions regarding their health for underwriting and a guaranteed issue policy that doesn’t require a health questionnaire or medical exam.
Cost of final expense life insurance
The premiums for a final expense life insurance policy are relatively affordable for a permanent policy. Here are the average rates for a $10,000 burial insurance policy:
- 60-year-old male: $63 per month
- 60-year-old female: $49 per month
Though final expense policies have lower premiums compared to traditional whole life policies, their premiums increase significantly the older you get. For example, average premiums are $197 and $158 for 80-year-old men and women, respectively.
Typical riders available
- Accelerated death benefit: Provides access to your death benefit if you are diagnosed with certain serious illnesses
- Accidental death: Increases your policy’s death benefit if your death is accidental
- Child term-life: Provides term insurance coverage for your children, giving you a death benefit if they pass away while the policy is in force
Who is final expense life insurance best for?
If you’re looking to take the financial burden of end-of-life expenses off your loved ones, final expense insurance may be right for you. Insurance companies usually offer this policy to applicants between the ages of 50 to 85, making it accessible for seniors who may struggle to qualify for traditional life insurance due to age-related conditions.
Pros and cons of final expense life insurance
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Group life insurance
Key features of group life insurance
- Policy length: Usually lasts as long as you’re a part of the group offering it
- Cash value: None, in most cases
- Death benefit: Fixed
- Medical exam requirements: None
- Ideal ages: 18 to 65
How group life insurance works
Group life insurance is typically offered by employers to their employees as part of their benefits package, typically providing coverages up to $50,000 or up to two times their annual salary. These policies function like renewable term life insurance, as employees can renew their policies annually.
The policy is relatively easy to obtain as it usually doesn’t require a medical exam. Employers also offer group life insurance at a more affordable cost than other life insurance policies or even for free.
Some employers may also offer permanent life insurance options, like whole life or universal life, to their employees, which include access to a cash value account.
The main drawback of group life insurance is that your coverage typically ends when your employment ends.
Cost of group life insurance
In most cases, group life insurance is either free or very affordable.
Typical riders available
Riders may or may not be available in a group plan, and the riders you may have access to can change based on the employer.
Who is group life insurance best for?
Group life insurance suits those who can get it through their employer or as a member of a professional group or association. Keep in mind that these policies typically have lower coverage limits than traditional life policies. If you’d like more financial protection, consider supplementing your group policy with a nongroup policy or purchasing additional coverage from your group policy provider.
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Other types of life insurance
Term, whole, universal and variable are the most common types of life insurance you’ll find. Group life insurance is popular, too, because employers often provide it at no or very low cost.
Other types of life insurance that aren’t quite as well-known as the popular types include:
- Supplemental: A type of term life coverage you can purchase in addition to what an employer provides through group life insurance.
- Joint: A type of policy — typically permanent life — that covers two people, usually spouses. First-to-die joint life insurance pays a death benefit when the first spouse dies. Second-to-die joint life insurance (“survivorship” coverage) pays out when the second spouse dies.
- Child life insurance: Some insurers offer policies specifically designed for children. These plans are typically term or whole life policies.
What type of life insurance is best for me?
The right type of life insurance policy for you is the one that meets your long-term financial needs. If you’re young and married or have a family and want to buy a lot of coverage for a relatively affordable price, term insurance is a great way to ensure that those who are depending on you for income will be taken care of once you pass.
If you are looking for a policy that will cover you for your whole life and incorporate a cash value account, permanent policies are the best option.
If you want a basic permanent policy with a set cash value growth, a whole life policy could be a good fit. If you’re more comfortable with risk and don’t mind investing your cash value, an indexed universal or variable life policy may work. And, if you want the freedom to change your premium and death benefit over time, a universal policy is a possibility.
Because life insurance policies are a relatively big financial commitment, speaking with a financial professional about which policy is best for your current and future financial situation is a smart choice.
Frequently asked questions (FAQs)
In general, you want your life insurance policy to cover any expenses or income loss your beneficiaries would take on if you passed. That being said, there are several methods for calculating how much coverage need based on things like your debts, assets and future financial goals.
In general, the older you are, the higher your life insurance premiums will be. Also, once you pass 80, you’ll have fewer policy types to choose from. If you’re in poor health, your premiums will be higher than average and, in some cases, insurers might choose not to cover you.
Yes, in certain situations, buying multiple life insurance policies can provide “better” coverage. For example, you purchase a whole life policy after you get married. You and your partner don’t plan to have kids, but after a few years, you decide to adopt. You may not feel comfortable with how much coverage your whole life policy provides, so you purchase a term policy to provide more coverage just in case you pass.
This way, if you die, say, before you’re able to save up enough money to send your child to college, your added death benefit can help send your child to school and your whole life policy can help your partner survive without your income.
Another situation in which multiple policies could make sense is if your employer offers group insurance. In many cases, you won’t have to pay for the extra coverage and it can complement any existing policies you have.
In most cases, filing a claim for a life insurance policy requires you to submit the following information to your insurer:
- Contact the insurer and let them know the insured has died.
- Collect any documentation your insurer asks for, including the insured’s death certificate. Information you’ll need to provide includes the policy number and the insured’s identifying details, such as name, address, date of birth and Social Security number.
- Choose how you want the death benefit paid out. Insurers typically allow a lump sum or a monthly payment structure (“annuitized”). Keep in mind that choosing the monthly payment option could have tax implications.
- Submit your claim to the insurer.
There are two ways to answer this question. The first is specific to filing a claim — the insurer pays a death benefit after it approves your claim. As long as the way the insured died is covered, there are no false or misleading states on the policy application, and the policy hasn’t lapsed (coverage stopped because the policyholder didn’t pay premiums or meet other basic requirements), then the insurer will likely approve the claim.
The second way that payouts work has to do with policy types. Term policies pay out your death benefit; a $500,000 policy payouts out $500,000 when you die as long as you paid your premiums. Universal policies typically pay out in one of two ways: the payout is equal to the death benefit (“Option A”), or the payout is equal to the death benefit plus the cash value (“Option B”). Whole life policies pay out the death benefit, but the death benefit amount may be lower than expected if, for example, the insured took out a loan against their cash value and didn’t pay it back before they died.
