Life Insurance Types: A Comprehensive Comparison Guide

There are several types of life insurance policies available, and the best option for you will depend on your individual needs and circumstances. The main types of life insurance include term life insurance, whole life insurance, universal life insurance, variable life insurance, and final expense life insurance. Term life insurance offers coverage for a set number of years and is typically the most affordable option. Whole life insurance, on the other hand, provides coverage for your entire life and usually includes a savings component. Universal life insurance is a type of permanent policy that allows for flexibility in adjusting the death benefit and premium amount. Variable life insurance offers a fixed death benefit but allows policyholders to invest the cash value in various options. Final expense life insurance, also known as burial insurance, is designed to cover end-of-life expenses and often has smaller death benefit amounts.

Term life insurance

When taking out a term life insurance policy, the policyholder must decide on the term length, which is often 10, 20 or 30 years. The best term for the policyholder will depend on their reasons for taking out the insurance. For example, if they are taking out the insurance to cover a short-term debt, a 10-year policy might be sufficient, whereas if they want to ensure their spouse can pay off their mortgage and support their children through college, a 30-year policy might be better.

There are several types of term life insurance policies, including level-premium term life, yearly renewable term life and decreasing term life. Level-premium term life insurance is the most common type, where the policyholder pays a fixed monthly payment for the duration of the policy. Yearly renewable term life insurance covers the policyholder for one year at a time, with the option to renew without a medical exam, but at a higher cost each year. Decreasing term life insurance has a death benefit that declines each year according to a predetermined schedule, although the premiums usually remain the same.

Whole life insurance

There are several main types of whole life insurance, categorized based on how premiums are paid.

• Level Payment: Premiums remain unchanged throughout the duration of the policy. This is the most common type of payment plan.
• Single Premium: The insured pays a one-time large premium, which funds the policy for life. But this type of policy is almost always a modified endowment contract, which has tax consequences.
• Limited Payment: As the name suggests, you pay a limited number of payments. Premiums will be higher than they would be in a level-payment situation, but you’ll only pay them for a certain number of years.
• Modified Whole Life Insurance: The opposite of a limited payment policy, this type of whole life insurance offers lower premiums than a standard policy in the first two or three years, and higher-than-standard premiums in the later years. It is more expensive in the long run.

Universal life insurance

Like whole life insurance, universal life insurance has a savings component that grows over time and allows for borrowing. However, unlike whole life insurance, the interest rate for a universal life policy's cash value is not fixed and can change over time based on market conditions. This means that the cash value of your policy may eventually grow to cover the cost of your premiums.

Overall, universal life insurance can be a good option for those seeking lifelong coverage with flexible premiums and death benefits. However, it requires active management to ensure that the policy remains in force and provides the desired level of protection.

Variable life insurance

A variation of variable life insurance is variable universal life insurance, which offers adjustable premiums and a similar investment structure. This type of policy may appeal to those who don't want to commit to fixed monthly payments.

Final expense life insurance

Final expense insurance is one of the most affordable types of life insurance, with rates starting at $63 per month for policies ranging from $5,000 to $40,000 in coverage. The application process is quick and easy, and coverage can be issued in days, sometimes even on the same day as the application. This type of insurance does not require a medical exam, only a brief health questionnaire.

Final expense insurance offers competitive, fixed premiums that do not change over time. The cash benefit can be used to cover funeral and burial costs, medical needs, or anything else that will help loved ones. The policy remains in place as long as premiums are paid, and it can build cash value over time, which can be used to borrow against or as a non-forfeiture benefit. Payment mode flexibility is also offered by some final expense insurance providers.

There are two common types of final expense life insurance plans:

• Full face value from policy issue if death is due to an accident or natural causes.
• Accidental death full benefit immediately, and non-accidental death with limited benefits for the first two years and a full benefit in the third year.

Frequently asked questions