Types of Life Insurance | 2024 Guide (2024)

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The type of life insurance coverage you choose depends on your situation. You might only need to cover the cost of your funeral. Or, you may want to ensure your family has long-term financial stability. Fortunately, there are several options to help you secure your loved ones’ futures.

The six main types of life insurance include:

• Whole life insurance
• Term life insurance
• Universal life insurance
• Variable life insurance
• Burial life insurance
• Mortgage life insurance

Whole life insurance is a type of permanent life insurance. This means you’ll get coverage for your entire life, provided you make premium payments.

A whole life policy is generally the simplest permanent life insurance option. The death benefit, or coverage amount, remains the same for the duration of the policy.

In addition, whole life policies have level premiums, so your insurance rate won’t go up over time.

Whole life policies don’t need a lot of management — you simply set up your policy and enjoy the benefits. For example, whole life policies guarantee a rate of return on the cash value you build.

While your cash value growth may be slower than other permanent life insurance policies, a fixed interest rate makes it easier for you and your beneficiaries to plan ahead. However, these guarantees often make whole life policies the most expensive type of life insurance.

Getting multiple quotes from the best whole life insurance companies helps you find the most affordable rates.

Term life insurance policies offer straightforward life insurance coverage for a set number of years. This simple type of life insurance is often the most affordable option for many people.

A term policy works by choosing the length of time the policy is active and the death benefit amount. The length of the policy, or term, is the period of time the policy provides coverage.

Terms are often measured in set numbers of years, or policies are in place until you reach a certain age. For example, a 30-year term policy purchased in 2000 would expire in 2030.

An age-based term policy, on the other hand, expires when you reach a specific age, such as 65 or 70 years old. The policy expires at the end of the term.

If you need longer coverage, you may want to choose a renewable or convertible policy. Renewable policies let you renew your coverage at the end of the term, while convertible policies let you convert your policy to permanent coverage.

Term policies don’t have a cash value component, so the death benefit payout is the only amount of money your beneficiaries receive. However, this makes term life insurance one of the most affordable types of life insurance policies.

In general, term life insurance premiums are much lower than permanent options. The simplicity of term insurance also means there are lots of options, making it easy to find cheap life insurance companies for your policy.

Universal life insurance, also called adjustable life insurance, offers permanent life insurance with flexibility. These policies let the insured person adjust the death benefit and premium amount, within policy limits.

Most policies also include a cash value component. However, the rate of return on the cash value is not guaranteed. Insurance companies use current market rates to determine the rate of return on cash value. The good news is this non-guaranteed return often makes universal life policies more affordable than other permanent options.

The adjustability of universal life products also makes them appealing to many insurance shoppers. With universal life, you can change your insurance policy to meet your current financial situation.

Additionally, the generally lower costs of universal life policies could help you secure lifelong coverage for less than other permanent insurance products. For example, suppose you unexpectedly lose your job.

With a universal life policy, you could adjust your premium payments to the minimum amount to keep the policy active. While you’ll stop building cash value, you’ll keep your life insurance coverage at a lower cost. Once you secure a new job, you can increase your premiums to start accruing cash value again.

Variable life insurance is a type of permanent life insurance coverage that provides a fixed death benefit to your loved ones upon your death, as long as you pay your premiums. Like whole life insurance, variable life insurance is a cash value life insurance you can use to build wealth.

What makes variable life policies unique, however, is the ability to invest the policy’s cash value amount. You can invest accrued cash value into various investment options, usually in the form of mutual funds or bonds.

If you make good investment choices, you could see significant gains in your cash value account. Insurance companies usually let you use this extra cash to increase your death benefit. On the other hand, poor investment choices could cause your cash value account to lose money.

Having an investment feature also means policyholders need to take an active role in managing their cash value accounts. This could be a benefit to you or a drawback, depending on your level of interest in investing.

Some variable life policyholders work with a licensed financial advisor to manage their accounts. However, this may add to the overall cost of the policy.

In addition, variable life policies often have higher premiums. They’re typically one of the most expensive types of life insurance. These higher premiums come before adding in the cost of management or investment fees.

Luckily, premiums for variable life insurance are generally fixed. The death benefit of a variable life insurance policy is usually fixed as well, even if your investments perform poorly.

A similar type of life insurance, variable universal life insurance, combines features of universal life and variable life insurance. These policies offer cash value investment options with adjustable premiums and death benefits.

Burial life insurance is permanent life insurance that helps your loved ones or dependents cover your funeral costs after passing away. Also called final expense or funeral life insurance, this coverage has a smaller death benefit than many other types of life insurance.

For example, death benefit options might only range from $5,000 to $25,000. Smaller death benefit amounts of final expense coverage are intended only to cover your final expenses, like the cost of a casket, cremation or funeral services.

Burial life insurance is one of the most affordable types of permanent life insurance. However, the cost-to-benefit ratio may make a burial policy comparatively more expensive than other types of life insurance.

As a type of permanent life insurance, funeral life insurance usually has a small cash value component. Most policies don’t last long enough or have high enough face value to build enough cash for withdrawals.

The purpose of a burial life insurance policy isn’t to build long-term cash value, however. Final expense insurance is generally beneficial for seniors or others in poor health to help their loved ones cover funeral expenses.

Burial policies are often no-exam life insurance, meaning an insurance company won’t require medical underwriting to secure coverage. No-exam insurance makes getting life insurance easier for someone with failing health. However, burial life insurance companies typically restrict death benefit payouts depending on when the insured person passes away.

For example, if you pass away within the first three years of getting a burial insurance policy, your beneficiaries may receive a reduced death benefit.

Mortgage life insurance is a unique type of term life insurance that helps your loved ones cover your mortgage payments if you pass away. As a term life insurance product, mortgage life insurance policies don’t have a cash value component.

Unlike traditional term insurance policies, however, mortgage life insurance isn’t tied to your age or a set number of years. Instead, mortgage life insurance policies last as long as your mortgage is active. The term ends when you pay off the mortgage.

Additionally, the death benefit of a mortgage life insurance policy is the remaining balance of your mortgage. You can also choose to insure only a portion of your mortgage balance.

As you pay down your home loan balance, the death benefit of the policy goes down as well. For example, you take out a mortgage life insurance policy with a $200,000 death benefit, which is the balance of your mortgage. If you pay down $50,000 of your mortgage balance, your death benefit is now $150,000.

Unlike most types of life insurance, mortgage life insurance coverage doesn’t pay the death benefit to your loved ones. This type of policy pays the death benefit directly to the mortgage company.

Most people who choose mortgage life insurance policies do so to protect their loved ones from an expensive mortgage payment if they unexpectedly pass away. In addition, many mortgage life policies don’t require a medical exam.

For instance, suppose you are the sole earner of your family and are facing serious health issues. If you pass away, you know your spouse cannot cover the cost of the mortgage, but you don’t want them to have to sell the house. You might worry you won’t qualify for other types of life insurance due to your health problems.

A mortgage life insurance policy lets you get coverage to pay off the mortgage without worrying about being denied coverage due to your health.

Shopping for life insurance doesn’t have a one-size-fits-all approach. You’ll need to carefully consider a few factors to determine what type of life insurance is best for you, such as:

• Cost: Term insurance policies tend to be the most affordable life insurance option, but coverage expires after a period of time. Permanent life insurance coverage lasts until you pass away, but costs are often much higher than term coverage.

• Cash value: Do you want to use your life insurance as additional savings? Permanent life insurance builds cash value that you can borrow against, use for premiums and to build tax-deferred wealth.

• Adjustability: Some policies, like universal life coverage, give you the ability to adjust your coverage or premiums throughout the life of your policy. This could be an important factor if you want the flexibility to change your policy based on your current needs.

• Customization: Many types of life insurance policies have riders, or endorsem*nts, that let you customize your policy to fit your needs. For example, adding a conversion rider to a term policy lets you convert the policy to permanent life insurance at its expiration.

• Medical history: People with serious medical conditions may want to look for life insurance with no medical exam. Young, healthy people, on the other hand, may want to go through medical underwriting to get the best price on a policy.

• Coverage needs: Do you want coverage just for your final expenses or to pay off your mortgage? Or are you looking for a death benefit that will protect your loved ones’ financial interests for years after your death? Consider your life insurance goals when choosing between types of life insurance.

• Earning potential: Some permanent insurance policies, like burial coverage, only earn marginal rates of return on cash value. If you’re looking to maximize your cash value earnings, you may want to consider variable life insurance or permanent policies with high fixed rates of return.

• Length of coverage: Examining how long you need life insurance coverage can help you choose between term and permanent life insurance policies. For example, if you have a major debt you want to cover with life insurance, such as your mortgage or student loans, a term policy might make sense. After paying off your debt, coverage may not be as important.

• Complexity of coverage: Are you looking for “set it and forget it” coverage? A term or whole life policy could be the right fit. These policies don’t require active management. However, a universal life policy or variable life policy might be a better fit if you want to be involved in managing your policies — and potentially increasing the benefits of the policy.

For many life insurance shoppers, the cost, length of coverage and coverage amount are the three most important factors when choosing a policy. As you start to compare types of life insurance policies, think about your life insurance goals and what policy features you’ll need to achieve those goals.

It’s also a good idea to get multiple life insurance quotes from different insurance companies. Cross-shopping life insurance policies will help you get the best combination of affordability and coverage.

Many people aren’t sure if they need life insurance, but most people can benefit from some form of coverage. The main benefit of most types of life insurance is to provide your loved ones with financial protection after your death.

If you have dependents, such as a spouse or children, having a life insurance policy can help replace your income if you unexpectedly pass away. Additionally, anyone with large debt — such as a mortgage or student loans — may want a life insurance policy so your loved ones don’t have to pay off your debt after your death.

Even if you don’t have dependents or major debts, a life insurance policy could provide a wide range of benefits.

For example, a recent college graduate may not have significant assets or dependents, but would still have final expenses if they passed away. A life insurance policy could help their loved ones pay for a funeral, burial and any unexpected end-of-life costs.

Additionally, getting a permanent life insurance policy while you’re young and healthy usually lowers the cost of premiums and gives you more time to build cash value.

Read our comprehensive guides on the following insurance categories to find top providers and peace of mind that you have all aspects of life covered.

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Methodology: Our System for Ranking the Best Life Insurance Companies

Our team researches and ranks life insurance companies using an in-depth scoring system that considers the factors most important to consumers like you. Our analysis includes a comprehensive review of each provider we feature based on available coverage, customizability, availability, customer service and company reputation. Here are the factors we take into consideration when rating life insurance providers:

• Brand trust (40%): Life insurance payouts can exceed $100,000 or more, which makes choosing a reputable and trustworthy installer important. To assess brand trust, we use J.D. Power and Associates customer satisfaction surveys, AM Best credit rating scores and the National Association of Insurance Commissioners (NAIC) complaint index. The higher a company scores in each area, the more points it receives.
• Coverage (33%): The more policy options a life insurance company offers, the more opportunities you have to obtain the right coverage for your specific needs. For this reason, we give companies the most points for offering multiple types of life insurance, including various term, permanent and no-exam options.
• Availability and ease of use (19%): Since life insurance coverage options can be complex, we consider the ways a customer can reach a company — and how easy communication is. For this category, we research how many communication channels a company offers for general customer support, claims processing and the application process. Companies earn the most points for offering various ways to interact with an agent, both in-person and online.
• Riders (8%): Companies offering various life insurance riders or endorsem*nts allow policyholders to better customize their coverage. In this category, we determine how many riders a company offers and award the most points to providers with more than 10 options.

We use our rating system to compare and contrast each company against key factors to help us determine the best life insurance companies in the industry. To learn more, read ourfull life insurance methodologyfor reviewing and scoring providers.AM Best Disclaimer