Types of Life Insurance Policies & How They Work

Written by
Lindsey Crossmier
Lindsey Crossmier
Financial Writer
Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.
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Edited By
Lamia Chowdhury
Lamia Chowdhury
Financial Editor
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.
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Reviewed By
Eric Estevez
Eric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.
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Published: May 11, 2020
Updated: July 6, 2023
6 min read time
This page features 7 Cited Research Articles

What Are the Main Types of Life Insurance?

There are two main types of life insurance: term and permanent. While both policy types have the same purpose – to financially protect your loved ones when you pass – they differ in coverage, features and overall cost.

The 2 Main Life Insurance Types

Policy Type	Coverage Length	Average Cost	Noteworthy Features
Term	Temporary (usually between 10 – 30 years)	Affordable	Can add riders for additional coverage Option to convert into permanent policy in some cases Some policies allow you to skip a medical exam
Permanent	Lifelong	More expensive	Can add riders for additional coverage Some policies allow flexible premiums and death benefit All permanent policies have tax-deferred cash value components

Term policies are the most popular, according to the Insurance Information Institute. They offer straightforward, cost-effective temporary coverage – with no complex bells and whistles. Your premiums and death benefit for term policies are fixed.

Permanent policies offer more flexibility, lifelong coverage and additional benefits for a higher premium cost. All permanent policies have a cash value component, which grows tax deferred. Think of permanent policies as death benefits with a bonus savings account.

The 3 Main Types of Permanent Life Insurance

The 3 Main Types of Permanent Life Insurance

Whole: Whole policies are the most common type of permanent policy, according to the Insurance Information Institute. Similar to term policies, they have a fixed death benefit and premiums, but whole life has lifelong coverage.
Universal: Universal policies have flexible death benefits and premiums. However, there can be repercussions if you adjust or skip your premiums regularly. Make sure to read the fine print of your policy or consult an advisor before doing so.
Variable: Variable policies have flexible death benefits and premiums. They also offer investment opportunities, which present more risk. If your investments perform well, the value of your policy will increase. However, if your investments fail, your policy’s value can suffer. But for some policies, the death benefit will not decrease below a certain threshold.

A combination of term and permanent policies can be optimal if you have enough discretionary income to fund both policies.

— Eric Esteves, Owner of HLC Insurance Broker, LLC

Comparing Different Types of Life Insurance

Carefully compare different types of life insurance when shopping for coverage. There isn’t a one-size-fits-all policy. Consider your specific needs – and the policy features that could address them.

Life Insurance Policy Type	Coverage Length	Average Cost	Cash Value Component	Medical Exam Required?
Term	5-, 10-, 15-, 20-, 25- and 30-year term lengths	Affordable premiums for high coverage (coverage limit usually around 25 times your yearly income)	No	Varies
Whole	Lifelong	Most expensive premiums for high coverage	Yes	Varies
Universal	Lifelong	Costly premiums for high coverage	Yes	Yes
Variable	Lifelong	Costly premiums for high coverage	Yes	Yes
Burial Insurance	Lifelong	Costly premiums with limited coverage (typically between $5,000 and $20,000)	Yes	No

Other Types of Life Insurance

While not as popular, there are other types of life insurance to consider. These options are either separate policies or available as rider add-ons to your life insurance policy.

Other Types

Group Life Insurance: This is a type of term policy available through your employer. Keep in mind that group policies are known to have limited coverage.
Mortgage Life Insurance: Covers the remaining balance of your mortgage to your lender when you pass.
Survivorship/Joint Life Insurance: Covers two people under the same policy.
Accidental Death and Dismemberment (AD&D) Insurance: AD&D insurance is available as a separate policy and a rider add-on. This type pays you a death benefit if you get severely injured or die due to an accident.
Credit Life Insurance: Pays a death benefit to cover any remaining debt when you pass. This type of benefit goes to your lenders, not your beneficiaries.

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Factors To Consider When Choosing Life Insurance

Generally, there are four factors to consider when choosing a life insurance policy — your age, health, budget and the amount of coverage you need.

4 Factors To Consider for Life Insurance Coverage

Age: Your age is perhaps the biggest factor in determining the best life insurance product for you. For example, if a 30-year-old is looking to buy a 10-year term policy with $250,000 of coverage, a premium quote through Progressive is $12.40 a month. However, if a 50-year-old is looking at the same exact policy, the premium quote has nearly tripled to $29.36 a month. The younger you are, the more affordable your premiums will be.
Health: According to the Texas Department of Insurance, if you’re found to be in poor health, or you smoke — you’ll face higher premiums. You can try to incorporate healthier habits before purchasing a life insurance policy or look for a policy that doesn’t require a medical exam.
Budget: Choose a life insurance policy with premiums that fall within your budget. If you can’t keep up with your premiums, your policy will lapse. And if you were to pass away while your policy has lapsed, your beneficiaries typically won’t receive a death benefit.
Amount of Coverage You Need: You may only want life insurance for a certain time period, such as when your kids are growing up. Or, you may want the peace of mind of lifelong coverage that can pay for funeral expenses and guarantee the financial well-being of your spouse. Make sure you choose a policy with coverage that fits your needs.

Life Insurance Calculator: Estimate Your Needed Coverage

Make sure to get quotes from multiple life insurance companies. Don’t accept your first quote; you’ll get different premium quotes for the same exact policy coverage.

Compare at least three life insurance quotes before buying a life insurance policy.

Which Life Insurance Is Right for You?

If You Want:	Consider a:
Temporary, affordable life insurance coverage with a fixed death benefit and premium	Term Life Insurance Policy
Lifelong coverage with a fixed death benefit and premium	Whole Life Insurance Policy
Lifelong coverage with a flexible death benefit and premiums	Universal Life Insurance Policy
Lifelong coverage with investment opportunities, a flexible death benefit and premiums	Variable Universal Life Insurance Policy
Lifelong coverage that is quickly approved without a medical exam, for a small, fixed death benefit to cover final expenses	Burial Insurance

Frequently Asked Questions about Types of Life Insurance

What are the three main types of permanent life insurance?

The three main types of permanent life insurance are whole, universal and variable life insurance. All offer lifelong coverage with cash value components, and each permanent policy type has individual benefits to consider – such as flexibility and investment options.

What are the different types of underwriting methods in life insurance?

There are generally two types of underwriting methods with life insurance — traditional underwriting and accelerated underwriting. Traditional underwriting requires a medical exam, while accelerated underwriting does not. It’s important to note that accelerated underwriting is normally only for those with good health and under the age of 60. It’s not uncommon to find term policies that don’t require a medical exam.

Editor Malori Malone contributed to this article.

Last Modified: July 6, 2023

Lindsey Crossmier Financial Writer

Lindsey Crossmier joined the RetireGuide team in 2022 as a writer to promote long-lasting financial literacy. She leverages her creative writing background, editorial experience and financial education from Yale to write retirement-focused financial content for those ready to prepare for their futures. Making complex information simple and accessible for all is her specialty.

Special focus on content about life insurance, Social Security, Medicare and certificates of deposits (CDs)
Research-based data drives her work
Bachelor’s degree in English from the University of Central Florida

Edited By

Lamia Chowdhury Financial Editor

Reviewed By

Eric Estevez Owner of HLC Insurance Broker, LLC

7 Cited Research Articles

Texas Department of Insurance. (2023, May 2). Life Insurance Guide. Retrieved from https://www.tdi.texas.gov/pubs/consumer/cb018.html
Millar, A. (2023, March 31). What Is Whole of Life Insurance? Retrieved from https://www.usnews.com/uk/360-reviews/life-insurance/whole-life-insurance
Lincoln Heritage Funeral Advantage. (2023, March 29). What is Burial or Funeral Insurance & How Does it Work? Retrieved from https://www.lhlic.com/consumer-resources/burial-funeral-insurance/
Insurance Information Institute. (2023). What Are the Different Types of Term Life Insurance Policies? Retrieved from https://www.iii.org/article/what-are-different-types-term-life-insurance-policies
Insurance Information Institute. (2023). What Are the Different Types of Permanent Life Insurance Policies? Retrieved from https://www.iii.org/article/what-are-different-types-permanent-life-insurance-policies
Progressive. (2023). How Much Does Life Insurance Cost? Retrieved from https://www.progressive.com/answers/how-much-is-life-insurance/
Securian Financial. (2021). Life Insurance Underwriting: Frequently Asked Questions. Retrieved from https://www.securian.com/insights-tools/articles/life-insurance-underwriting-faqs.html