Details on the different types of life insurance

Term life insurance

  • Term life is the most affordable option.
  • Provides coverage for a set number of years and pays out as long as the policy stays active.
  • You can lock in your rates for the entire term period, which can make budgeting and planning easier.
  • Generally costs less than permanent insurance, because it's only in place for a limited time.
  • At the end of the term period, and based upon the product options available, you may be able to renew your policy.
    • Your new rate will be based on your age and health at the time of renewal.
  • You may or may not need a medical exam to obtain coverage.

Permanent life insurance

  • Permanent offers you coverage for your entire life, and pays your benefit no matter when you pass away, as long as you keep paying your bill.
  • Types of permanent life insurance include whole, universal, guaranteed, and final expense or burial insurance.
  • This type may include a cash value feature, which means that a portion of the premium you pay goes into a “cash value” sub-account.
    • You can then invest and grow that money tax-deferred (similar to a traditional 401k). That's why premiums could be higher than those for term life insurance with a similar amount of coverage.
    • This cash value can eventually build into a zero-cost policy, in which all premiums are paid from the cash value you've built up.
  • You can choose to withdraw a portion of funds (based on the cash value portion you've paid into your policy) as a loan, particularly for whole life.
    • There's typically no credit check required and a minimal loan process—since you're essentially borrowing money from yourself.
    • You can pay back the loan with the interest accrued, or if you pass away before returning the funds, the remaining loan amount and interest will simply be withdrawn from the payout to your beneficiaries.
  • You may be able to pay all your future policy premiums (required payments) early. Then, your life insurance policy remains in place for the duration of your life.

Final expense life insurance

  • Final expense features a payout amount that's much smaller than term life or permanent life insurance.
  • Designed for final expenses, such as funeral costs, medical bills, credit card debt, etc.

Comparing the different types of life insurance

Life insurance type Coverage lasts Best for ages Builds cash value? Medical exam required Coverage amounts
Term Coverage lasts: 10, 15, 20, 30 years Best for ages: 18 – 80 Builds cash value?: No Medical exam required: Varies Coverage amounts: $100,000+
Final Expense Coverage lasts: 10 – 30 years or lifetime* Best for ages: 45 – 85 Builds cash value?: Yes Medical exam required: No Coverage amounts: $2,500 – $35,000
Whole (Permanent) Coverage lasts: Your lifetime Best for ages: 50 – 85 Builds cash value?: Yes Medical exam required: Yes** Coverage amounts: $5,000 – $150,000
Universal (Permanent) Coverage lasts: Your lifetime Best for ages: 18 – 85 Builds cash value?: Yes Medical exam required: Yes Coverage amounts: $50,000+
Variable (Permanent) Coverage lasts: Your lifetime Best for ages: 18 – 80 Builds cash value?: Yes Medical exam required: Yes Coverage amounts: $50,000+