Six Types of Life Insurance, Explained

All life insurance policies have one thing in common: They’re designed to pay a death benefit to your designated beneficiaries upon your passing. You typically choose the dollar amount of the death benefit when you buy the policy. Choosing a higher death benefit means you’ll pay more. Beneficiaries are often your surviving spouse or children, but they may include other family members, business partners, or a family trust.

Choosing a death benefit is just one of the decisions you must make when buying life insurance. In fact, there are a number of policy types to choose from, each with different features. A key feature to understand is the policy’s length. A policy can either be in force for a set term or be permanent and remain in force until the end of your life. Permanent life policies also typically have a savings feature known as “cash value.”

Sorting through these and other options can take some time. The good news is that having these options means you can get a policy closely aligned with your (and your family's) needs.

Let’s take a closer look at six key different types of life insurance.

Different types of life insurance

Term life insurance

A term life insurance policy lasts for a set period—usually 10, 20, or 30 years. You choose the length of the term when you buy the policy. When the term ends, the policy expires. However, some insurance companies provide an option to renew coverage from year to year after the end of the term.

Unlike many other types of life insurance, term life has no cash value component—it’s simply insurance. Because of this, term life insurance is typically much simpler and cheaper than other types of coverage.

Term life pros

• Cheapest type of life insurance.
• Simpler than other coverage.

Term life cons

• Policy expires at the end of the term.
• No cash value component.

Is term life right for you?

Term life insurance is a good option if you need life insurance for a set term (for example, until children have reached adulthood) and aren’t interested in a cash value feature.

Whole life insurance

Whole life is permanent insurance, meaning a policy stays in effect until your death, provided you pay the policy’s premium. Whole life also has a cash-value feature, with earnings at a modest, though guaranteed, rate. You can access this money through a loan or withdrawal, though it may take several years to build up enough cash value to do so.

Because of these features, whole life policies tend to be significantly more expensive than term life policies.

Whole life pros

• Cash value grows at a guaranteed rate.

Whole life cons

• More expensive than term life.
• Other forms of cash value insurance have more aggressive cash-value growth.

Is whole life right for you?

Whole life can be a good fit if you need permanent insurance that will never expire and are interested in cash value with guaranteed returns.

Universal life

Universal life is another type of permanent, cash-value insurance. But unlike whole life, universal life offers a bit of flexibility. Importantly, you can adjust the death benefit and premium as your needs change. Universal life also has a cash-value component that grows based on market performance. That growth is not guaranteed, however.

Universal life pros

• Adjustable death benefit.
• Typically costs less than whole life.

Variable life pros

• Cash-value growth is not guaranteed.

Is universal life right for you?

A universal life policy may be a good choice if you need permanent insurance that will never expire and have greater risk tolerance when it comes to cash value.

Variable life

Variable life is permanent life insurance with cash value. These policies allow the most control over the cash-value investment: You can pick and choose from a portfolio of bonds or mutual funds in which to invest your cash-value funds. These policies carry a greater degree of investment risk and reward than whole or universal life. You may decide to enlist the help of a financial advisor to manage your cash-value investment portfolio.

A variable life insurance death benefit is usually fixed, as is the premium.

Variable life pros

• Higher potential investment returns compared to whole or universal life.

Variable life cons

• Greater investment risk.
• May need assistance from a financial advisor to manage the policy investments.
• Typically higher cost compared to whole or universal life.

Is variable life right for you?

If you need permanent insurance that will never expire and have the resources to manage the policy's investment portfolio, variable life may be right for you.

Burial life insurance

Burial life insurance policies are marketed to seniors or those in poor health as a way to help family members pay for a funeral and associated costs. These are typically whole life insurance policies with a limited death benefit (for example, no more than $25,000). They're also "guaranteed issue," meaning there’s no medical exam, and the policy is issued without extensive underwriting. This makes these policies easier to buy than other life insurance types.

While these policies may have a cash-value component, they’re typically not purchased as an investment tool. Such policies are rarely in force long enough to build much cash value.

Burial life pros

• May be more affordable than other types of life insurance.
• Ensures the policyholder’s beneficiaries can cover funeral costs.
• Typically guaranteed issue.

Burial life cons

• Policy may not be in force long enough to build significant cash value.

Is burial life right for you?

If you’re a senior or have serious health issues and want to be sure your dependents can cover your funeral costs, burial life can be a good fit.

Mortgage life insurance

A variation of a term life policy, a mortgage life insurance policy ensures your family isn’t saddled with a mortgage payment after your death.

The term and death benefit of a mortgage life insurance policy are tied to the term and balance of the mortgage. As the mortgage balance is paid down, the policy’s death benefit decreases correspondingly. The policy premium may decrease as well. As with any other term life insurance policy, a mortgage life insurance policy has no cash-value component.

The death benefit may be payable directly to the mortgage lender. This ensures the policy fulfills its intended purpose. However, it does remove the flexibility inherent in a typical death benefit payment, which can be put to numerous purposes by your beneficiaries.

Mortgage life insurance pros

• Death benefit is tied to the balance of the mortgage.
• Helps surviving family avoid being saddled with a mortgage.

Mortgage life insurance cons

• Death benefit paid directly to lender.
• No cash value.

Is mortgage life right for you?

Choose mortgage life insurance if you don’t want loved ones to have mortgage payments after your death and don’t need the flexibility of having a death benefit paid directly to your family members.

More types of life insurance

The six life insurance types outlined above just scratch the surface of your options. Here are a few more to consider:

Group life insurance

Group life insurance is coverage provided by an employer as an employee benefit. Because the premiums are calculated based on the group (all employees) rather than the individual, policies are usually very inexpensive. However, the amount of coverage may not be enough to provide substantial financial security to your family. And it may end when you leave your job.

Supplemental life insurance

Supplemental life insurance is intended to complement and round out employer-provided group coverage. A policy may be available through your employer or purchased on the open market.

Accidental death and dismemberment (AD&D) insurance

Typically provided by an employer, AD&D insurance pays if a work accident results in your death, severe injury, or permanent paralysis.

Credit life insurance

Credit life pays off the balance of a home equity line of credit or other personal loan in the event of your death. It may be offered by your lender when you take out the loan.

Survivorship life insurance

A survivorship policy insures two people, such as a married couple. The death benefit is paid only after both policyholders pass away.

Types of life insurance by underwriting method

When shopping for life insurance, it's helpful to understand the types of underwriting used by insurance companies.

Underwriting is the process insurers use to determine the likelihood you'll file a claim within a certain period. This likelihood drives the cost of the policy. It may also help the insurer determine other details, such as how quickly to put coverage into effect.

Traditional underwriting

Traditional life insurance underwriting involves a medical exam, an extensive medical history screening, and even a review of your hobbies and lifestyle. All of this helps the insurer determine your life expectancy.

Accelerated underwriting

With accelerated underwriting, an insurer typically forgoes a medical exam and leans more heavily on your answers to a health questionnaire and a review of your medical records. The insurer may also look at third-party information, such as your prescription history. If the insurer’s review of these records results in any concerns, it may require you to take a medical exam. A policy with accelerated underwriting may cost a bit more than one that’s traditionally underwritten.

Guaranteed issue

As the label implies, guaranteed issue life insurance underwriting ensures you’ll be able to get coverage. There’s no medical exam or questionnaire to complete. Guaranteed issue policies are usually marketed to older adults and provide only a limited death benefit.

Simplified issue

A simplified issue policy does not require a medical exam. However, the insurer will require you to complete a health questionnaire and may review third-party medical records. Coverage can be denied based on the questionnaire and records.

Best life insurance companies 2023

More than 700 companies sell life insurance in the U.S. Here are a some of our recommendations:

An independent insurance agent or financial advisor specializing in life insurance can help you sort through your choices and get the right policy. You can also consider an online broker such as Everyday Life, which offers whole and term life insurance from several companies.

TIME Stamp: When it comes to life insurance, you have many options

All life insurance policies pay a death benefit. However, that’s where the similarity stops. Each type offers specific features that may make sense based on your needs. An insurance agent or financial advisor can help you understand your options.

Frequently asked questions (FAQs)

What is the most popular type of life insurance?

According to the American Council of Life Insurers, approximately 41% of life insurance policies sold are term life. Permanent life insurance makes up the remaining 59%, though that percentage is split by multiple policy types (for example, whole, universal, and variable).

What is the difference between term life and whole life?

Term life policies have a set term of typically 10, 20, or 30 years. When the term ends, the policy expires. These policies have no cash value feature—they’re insurance, plain and simple.

Whole life policies are permanent, meaning they stay in force until death. These policies have a cash value component, which earns money at a guaranteed, though modest, rate. You can access the policy's cash value through a loan or withdrawal. Because of these features, whole life policies are usually much more expensive.

Which type of life insurance is also an investment?

Any permanent life insurance policy has a savings and investment component called cash value. Cash value earns money over time; how it earns depends on the specific policy type. A whole life policy, for example, earns a guaranteed but modest return. A variable life policy, on the other hand, has earnings (not guaranteed) based on the performance of an investment portfolio. Note that if you don’t use up the cash value—to help pay premiums, fund your retirement, or in other ways—before your death, what’s left stays with the insurance company; it does not go to your beneficiaries.