Types of Life Insurance Explained: A Complete 2025 Guide
Written by Daniel Ray, Life Insurance Expert |
✅
Fact Checked by
Lisamarie Monaco |
Editorial Disclosure
Understanding the types of life insurance is crucial for selecting the right policy to protect your loved ones and financial future. From term and whole life insurance to specialized plans, each option serves unique purposes.
In this guide, we’ll explain the different types of life insurance, explore leading life insurance companies, and answer key questions like “What is the best type of life insurance to get?” and “Which is better, whole life or term?
What Are the Main Types of Life Insurance?
Many clients ask, what is the best type of life insurance to buy?
| Insurance Type | Description |
|---|---|
| Term Life Insurance | A straightforward option, term life insurance provides coverage for a specific period. It’s ideal for those looking for affordable premiums and short-term coverage. |
| Permanent Life Insurance | Lifetime coverage that can build cash value, with various subtypes. |
| Whole Life Insurance | Whole life insurance lasts your entire life, building cash value over time. It’s a two-in-one solution: insurance and investment. |
| Universal Life Insurance | This flexible policy allows you to adjust your premiums and death benefits. It combines the benefits of term and whole life insurance. |
| Variable Life Insurance | Tied to a series of investment options, this policy’s cash value can increase or decrease based on market performance. |
| Variable Universal Life Insurance | Combination of Universal and Variable, offering investment options with flexibility. |
| Simplified Issue Life Insurance | Does not require a medical exam but does ask a few health questions. |
| Guaranteed Issue Life Insurance | Does not require a medical exam or health questions, often for seniors. |
| Final Expense/Burial Insurance | Small policies intended to cover funeral and burial costs. |
| Group Life Insurance | Offered by employers or associations to its members, typically at a lower rate. |
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Honestly, it truly depends on you and your family. There are factors that will determine how your independent agent would guide you to get the best carrier at the best rate.
In addition, the following will also determine what your monthly/yearly premium will be:
| Factor | Description |
|---|---|
| Age | The age of the individual can affect insurance rates, health risks, and more. |
| Family | Dependents and family members that might be reliant on the individual’s income. |
| Health | Overall physical and mental health status. |
| Family Medical History | Historical health information about immediate family members, which can indicate potential risks. |
| Occupation | The profession of the individual which can dictate potential risks and stress levels. |
| Smoker vs Non-smoker | Whether the individual uses tobacco products, as this can greatly affect health. |
| Gender | Some insurance policies consider gender due to different health risks and life expectancies. |
| DMV/Driving History/Record | A record of an individual’s driving history, including accidents, tickets, and other violations. |
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What Is the Best Type of Life Insurance to Get?
Determining the best type of life insurance depends on your specific needs, financial goals, and life circumstances. While both term and permanent life insurance policies provide valuable coverage, the most suitable option varies from person to person.
Here’s an expanded breakdown to help you decide:
1. Consider Your Financial Goals and Needs
- Short-Term Needs (10–30 Years):
If your primary goal is to provide financial protection for your family while paying off a mortgage, raising children, or covering other debts, term life insurance is often the best option.- Why: It’s affordable, straightforward, and provides high coverage for a low premium during a specified term (e.g., 10, 20, or 30 years).
- Long-Term or Lifetime Needs:
If you’re looking for a policy that builds cash value, serves as an investment tool, or offers guaranteed lifetime coverage, a whole life insurance or universal life insurance policy may be better.- Why: These policies remain in force for your entire life (as long as premiums are paid) and can be used for retirement income, estate planning, or leaving a legacy.
2. Compare Policy Features
Here’s a quick comparison between popular life insurance options:
| Type of Life Insurance | Best For | Key Features |
|---|---|---|
| Term Life Insurance | Short-term needs, affordability | Low premiums, fixed coverage for a set term |
| Whole Life Insurance | Long-term needs, cash value growth | Lifetime coverage, cash value, fixed premiums |
| Universal Life Insurance | Flexible premiums, estate planning | Adjustable coverage and payments, cash accumulation |
| Final Expense Insurance | Seniors, burial/funeral expenses | Simplified issue, lower coverage amounts |
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3. Real-World Scenarios to Help You Decide
- Scenario 1: You’re 30 years old, married, with two children and a mortgage.
- Best Choice: Term life insurance (20–30 years) to provide financial security during your working years and protect your family’s future.
- Scenario 2: You’re 60 years old, with no major debts but want to ensure funeral costs are covered.
- Best Choice: Final expense insurance or a small whole life insurance policy for guaranteed coverage and peace of mind.
- Scenario 3: You’re 45, have significant assets, and want a tax-advantaged way to transfer wealth.
- Best Choice: Whole life or universal life insurance to provide lifetime coverage while building cash value for estate planning.
4. Final Recommendation
The best type of life insurance ultimately depends on balancing your budget, family needs, and long-term goals. For many, starting with term life insurance is an ideal, cost-effective solution. However, as your financial situation evolves, combining term and permanent policies can provide comprehensive protection.
For those unsure where to start, consulting with a licensed insurance advisor can help identify the most suitable option based on your unique circumstances.
Term Vs Whole Life Insurance
Types of Term Life Insurance Policies
| Type | Description |
|---|---|
| Term Life Insurance | The most popular kind of life insurance on the market. Term life insurance offers solely death benefit protection. The plans are affordable but temporary. The term length can be 10, 15, 20, 25, or 30 years. All top life insurance companies offer this. You can research how much a million-dollar life insurance policy will cost you. |
| Increasing And Decreasing Term Life Insurance | Depending on the type, the death benefit may decrease over time. These are known as decreasing term life insurance policies. The policy ends when the death benefit is zero. It’s popular for covering mortgages. |
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Types of Whole Life Insurance Plans
Whole life insurance policies have cash value… see below.
| Type | Description |
|---|---|
| Permanent Life Insurance | Unlike term life insurance, permanent life insurance features a cash value build-up. Permanent policies cover you for life, as long as premiums are paid. |
| Whole Life Insurance | The most basic kind of permanent insurance. Premiums remain constant for life. Applying while young and healthy means lower premiums. However, high-risk individuals may pay more. Whole life insurance also includes a non-taxable cash value build-up. |
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The Most Expensive Type Of Life Insurance Is Whole Life
Why whole life insurance is not my favorite product to offer my clients?
Why whole life insurance is bad! Whole life insurance is much more expensive than term life insurance. The premium amount stays the same for the lifetime of the policy.
Sure, I make more of a commission from clients purchasing whole life. However, it is not the best product for most people. Especially for today’s young families.
However….
Who is Whole Life Insurance Good For? Seniors. They benefit from simplified issue whole life products that offer guaranteed, lifelong protection with living benefits, covering final expenses. Premium costs never rise, and in most situations, no medical exam is required for this policy.
Additionally, whole life has a cash value component. As long as you stay current with premiums, you lock in at a level rate.
Cost of premiums never increase. In most situations, there would be no medical exam for this policy as well.
For Business Owners… From a business perspective, whole life insurance is an excellent option for affluent individuals. They can over-fund it as a strategy to defer taxes in the future.
Different Types Of Universal Life Insurance
| Type | Description |
|---|---|
| Universal Life Insurance | A type of permanent life insurance. It offers what whole life insurance does, but with a more flexible cash value build-up component. |
| Variable Life Insurance | Permanent life insurance that lets the holder actively engage in cash value investments, such as equities. It’s a higher risk but can yield higher rewards since values depend on the market. |
| Variable Universal Life Insurance | Similar to traditional universal life insurance, except the policyholder can direct cash value into diverse investments like mutual funds. There is no guaranteed minimum interest for this policy type. |
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Life Insurance For Married Couple
Joint Life Insurance For Married Couples
| Type | Description |
|---|---|
| Survivorship Life Insurance | A type of life insurance that covers more than one person with a single policy. Various policy setups are available: |
| First to Die | Pays out to the other person after one of them passes away. |
| Last to Die | Pays out after the second person passes away. While the premiums for these plans are higher, they are more cost-effective than purchasing multiple individual policies. |
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Final Expense/Burial Insurance
Burial Insurance And No Exam Life Insurance
| Type | Description |
|---|---|
| Final Expense/Burial Insurance | Designed for people aged 50-85 to cover final expenses like caskets and headstones. Average burial costs are around $10,000. Approval for this policy is relatively easy, making it common for life insurance for those 75 and over. |
| No Medical Exam | As the name suggests, this insurance type doesn’t require a physical examination. Ideal for individuals struggling to get coverage due to health conditions. Coverage starts soon after application, but premiums can be higher. |
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Dividend-Paying Whole Life Insurance
Whole life policies that benefit from profits are then paid to the policyholders. Overall, these are usually participating whole life insurance carriers.
For example, a term life rider and infinite banking will allow you to get the coverage you need as the cash value accelerates growth.
Types of Insurance Underwriting
| Type | Description |
|---|---|
| Fully Underwritten | Requires a medical exam and usually has a lengthy application process. Often the cheapest, it demands detailed health, family, and lifestyle information. |
| Accelerated Underwriting | No medical exam needed. Some health questions are part of the application. The insurer might use third-party data, like prescription history. Can sometimes be as competitively priced as fully underwritten policies. |
| Simplified Issue | Doesn’t require a medical exam but asks a few health questions. |
| Guaranteed Issue | Guarantees approval without a medical exam or health questions. |
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Who Needs Life Insurance?
You DO! Your family and children depend on you for financial support. Remember, when you die, your paycheck dies with you!!!
FAQs
Term life insurance provides coverage for a set period and pays out only if the insured dies during that term. It does not accumulate cash value and generally offers lower premiums. In contrast, whole life insurance offers lifetime coverage, builds cash value over time, and has higher premiums due to the added savings component.
Universal life insurance is a type of permanent life insurance with flexible premiums and adjustable death benefits. It allows policyholders to adjust their coverage and payment amounts, offering flexibility to adapt to changing financial situations. The cash value earns interest based on market rates, providing potential for growth.
Those seeking flexibility in premiums and benefits, coupled with an investment component, might find universal life insurance appealing.
Variable life insurance is suitable for individuals who are comfortable with investment risk and seek the potential for higher cash value growth through market investments. Policyholders can allocate funds among various investment options, such as stocks and bonds, which can lead to increased cash value but also comes with the possibility of losses.
No, life insurance can be vital for anyone, including stay-at-home parents, business owners, and even children.
Some policies, like whole and universal life insurance, accumulate cash value over time, which you can borrow against or even withdraw in some cases.
Final expense insurance, also known as burial insurance, is designed to cover end-of-life expenses like funeral and burial costs. It typically offers lower coverage amounts, making it more affordable and easier to qualify for, especially for seniors or those with health issues.
Selecting the appropriate life insurance depends on factors such as your financial goals, budget, coverage needs, and risk tolerance. Consider the following steps:
1. Assess Your Needs: Determine the purpose of the insurance—income replacement, debt coverage, estate planning, etc.
2. Evaluate Your Budget: Understand how much you can afford to pay in premiums.
3. Consult a Financial Advisor: Seek professional advice to explore options tailored to your situation.
4. Compare Policies: Review different policies to find the one that best aligns with your objectives.
Many term life insurance policies offer a conversion option, allowing policyholders to convert to a permanent policy without undergoing a medical exam. This feature is beneficial if your needs change, and you desire lifelong coverage.
Premiums vary based on the type of policy, coverage amount, age, health, and other factors:
Term Life Insurance: Generally has lower premiums, making it cost-effective for temporary coverage needs.
Whole Life Insurance: Higher premiums due to lifetime coverage and cash value accumulation.
Universal and Variable Life Insurance: Premiums can vary widely based on policy structure and investment performance.
Yes, certain policies, such as simplified issue or guaranteed issue life insurance, do not require medical exams. These are often used for final expense or smaller coverage amounts but may come with higher premiums and limited coverage options.
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Conclusion
Life insurance, whether it’s term, whole, universal, or variable, offers an essential safety net for our loved ones. By understanding the distinct features of each, you can choose a policy that aligns with your current needs and future aspirations.
Always consult with a life insurance provider or financial expert to guide you through the decision-making process.
Remember, the right life insurance policy not only ensures peace of mind but also a secure financial future for your family.
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