The five types of life insurance policies you may encounter include term life insurance, whole life insurance, universal life insurance, variable life insurance, and burial or final expense life insurance.
There are many different types of life insurance policies on the market to consider, but they’re all grouped in two main categories: term life insurance and permanent life insurance. Term — the most popular type of life insurance — lasts for a specific amount of time, while permanent lasts your entire life.
The right policy for you will depend on your personal circumstances, unique needs, how much coverage you need, and how much you want to pay for it. This guide covers the most common types of life insurance policies on the market, including information on how they work, their pros and cons, how long they last, and who they’re best for.
Term life insurance
Term is the most popular type of life insurance for most people because it’s straightforward, affordable, and only lasts for as long as you need it. Term life insurance is one of the easiest and cheapest ways to provide a financial safety net for your loved ones.
How it works: Term life insurance lasts for a set number of years before it expires. You pay premiums toward the policy, and if you die during the term, the insurance company pays a set amount of money, known as the death benefit, to your designated beneficiaries. The death benefit can be paid out as a lump sum or an annuity. Most people choose to receive the death benefit as a lump sum to avoid taxes
Pro: Affordability — term policies are less expensive than other types of life insurance and generally have lower premium costs
Con: Length — term has an expiration date, which can align with a mortgage or when your children graduate college. If you’re looking for lifelong coverage, you should opt for permanent life insurance instead
Best for: Most life insurance shoppers. Those looking for cheaper life insurance for up to 30 years or longer should buy term life insurance
Whole life insurance
Whole life insurance is the most popular type of permanent life insurance because of its simplicity and lifelong duration. Its cash value — an investment-like, tax-deferred savings account — earns interest at a fixed rate.
How it works: Whole life insurance has a guaranteed death benefit and cash value that earns interest over time. A portion of your premium goes toward the cost of maintaining the insurance policy and the rest goes toward the cash value account
Pro: Cash value & lifelong coverage — the cash value component can cover endowments or estate plans. And since this coverage lasts for your entire life, it can help support long-term dependents such as children with disabilities
Con: Cost & complexity —a whole life insurance policy can cost five to 15 times more than a term life policy for the same death benefit amount. The cash value component makes whole life more complex than term life because of fees, taxes, interest, and other stipulations
Best for: High-net-worth individuals who need to diversify their investment portfolio and people with dependents who may need long-term care
Universal life insurance
Universal life insurance is a flexible permanent life insurance policy that lets you decrease — or increase — how much you pay toward premiums. If you decrease how much you spend on premiums, the difference is withdrawn from your policy’s cash value.
A universal life insurance policy can be a good fit if you’re looking for some flexibility in your life insurance — and you can afford that flexibility; a universal policy is more expensive and complicated than the standard whole life.
How it works: Universal life insurance allows you to adjust your premiums and death benefit depending on your needs. If, after some time, you decide to stop paying or lower your monthly premiums, you can use the cash value to cover your premiums
Pro: Flexibility — you can adjust your premiums based on your financial needs
Con: Investment risk — interest earned from the cash value is based on market performance, so it’s not the best option to save money for the future
Best for: High earners who are trying to build a nest egg without entering a higher income bracket
Variable life insurance
Variable life insurance is a type of permanent coverage that allows you to invest the money from your cash value in various funds offered by the insurance company, including mutual funds.
While variable life insurance comes with a guaranteed minimum death benefit, the cash value amount is not guaranteed and will depend on market conditions. You may earn more interest than you would with a whole life insurance policy, which gives you a fixed interest rate, but you, as the policyholder, will bear the investment risk if the fund underperforms.
How it works: Variable life provides the opportunity to invest the cash value in various funds offered by the insurance company, including mutual funds. Investment performance will reflect broader market trends
Pro: Gains potential — variable policies may earn more interest than traditional whole life
Con: Investment risk — potential for losing money if the funds you picked underperform
Best for: High earners looking for permanent coverage options to diversify their investment portfolio
The best way to decide between term or whole is to talk with a financial advisor and work with an independent broker to find the right policy for your specific needs. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
Final expense insurance
Final expense insurance, also known as burial insurance, is a type of life insurance designed to pay a small death benefit to your family to help cover end-of-life expenses. Unlike traditional life insurance, which is meant to replace decades’ worth of income, burial insurance is usually suited to older adults who want a smaller policy to cover their funeral costs.
Because of its high rates and lower coverage amounts, final expense insurance is usually not as good a value as term life insurance.
How it works: Unlike most traditional policies that require a medical exam, you only need to answer a few questions to qualify for final expense insurance. And there’s little to no waiting period to get covered
Pro: Guaranteed coverage — easy access to a small benefit to cover end-of-life expenses, including medical bills, burial or cremation services, and caskets or urns
Con: Cost — expensive premiums for lower coverage amounts
Best for: People who have trouble qualifying for traditional coverage, like seniors and people with serious health conditions
Comparing the five main types of life insurance, at a glance
What are the basic features of a life insurance policy?
Premium: It’s the money you pay to keep your policy active. Most often, premiums are paid either monthly or annually.
Policy length: It’s how long the policy will be active. With term policies, this is typically 10-30 years. Permanent policies last your entire life.
Death benefit: It’s the amount of money the beneficiaries get if/when the insured dies. Death benefits are most commonly paid as tax-free lump sums.
Beneficiary: The beneficiary or beneficiaries are the people who receive the death benefit when the insured passes away.
Cash value: It’s a feature that comes with many permanent life insurance policies — it provides a separate account within your policy that earns interest at a fixed rate.
Riders: They’re optional add-ons you can use to customize your policy. Some policies come with riders automatically included, while others can be added at an extra cost.
→ Learn more about how life insurance works
What type of life insurance is best for you?
Term life insurance policies are usually the best solution for people who need affordable life insurance for a specific period in their life. Permanent life insurance policies, including whole, universal and variable life insurance, are best for people who can pay more and want life insurance that will never expire.
Final expense insurance can be an option for people who might not be able to get insured otherwise because of age or poor health, or elderly consumers who don’t want to burden their families with burial costs.
You should always speak to a licensed independent broker, like Policygenius, or a financial advisor to determine the best insurance company and policy for you. They can help you weigh the pros and cons of each type of coverage and buy the right type of insurance for your needs.
Ten other common types of life insurance
In addition to the most popular life insurance policy types mentioned above, you have other life insurance options depending on your specific coverage needs and profile as an applicant. From no-medical-exam life insurance and mortgage protection life insurance to guaranteed issue life insurance and group life insurance, some of these coverage options might be a good fit for your personal situation.
No medical exam life insurance
No medical exam is a type of life insurance that doesn’t require a medical exam to be approved. Instead, no-med policies use past health records and other information about you to determine your premiums.
These types of policies also come with shorter waiting periods, which is the gap between the moment you start the application process and the moment your policy becomes effective. If you have zero to one mild health condition and no family history of high-risk conditions like heart disease, especially if you’re young, you’ll most likely be eligible for no-med.
Pro: Time-saving — no-med provides faster access to life insurance without having to take the medical exam
Con: People who are of old age or in poor health might not be eligible
Best for: Anyone who’s in good health
Short term life insurance
A short term life insurance policy provides some coverage while you're waiting to get a longer-term policy. Policies last a year or less and protect you if you can't get affordable premiums due to a current health condition or you're waiting for your insurer to come to a decision on your application.
Short term policies have their own set of limitations, like increasing premiums and coverage maximums, but can provide some temporary protection. The two most common policy types include annual renewable life insurance and temporary life insurance.
Pro: Convenience — short term can provide temporary coverage
Con: Duration & cost — can last only a few months and/or have increasing premiums
Best for: People waiting approval for a longer-term policy
Simplified issue whole life insurance
Simplified whole life insurance, also called simplified issue life insurance, offers a small amount of permanent life insurance coverage to those who don’t qualify for other policies, and it doesn't require a medical exam. Instead, you answer a few questions about your health.
The shorter application process gets you almost immediate coverage, but because the health evaluation isn’t as thorough, insurers set a higher premium for a lower coverage amount. However, simplified issue policies can help seniors or people with certain pre-existing conditions get coverage to pay for final expenses.
Pro: Convenience — simplified issue provides small coverage for final expenses without having to take the medical exam
Con: Cost — higher premiums for a low coverage amount. People over a certain age or with severe underlying medical conditions may not qualify
Best for: Seniors without major medical issues
Guaranteed issue life insurance
Guaranteed issue life insurance belongs to a category of policies called burial insurance. It’s permanent coverage that's best for people between age 45 and 80 and those who can’t qualify for a standard life insurance policy due to a serious medical condition or terminal illness. Application acceptance is near-guaranteed.
Unlike term or whole life insurance, the application for guaranteed issue life insurance doesn’t involve health questions or a medical exam. It has a small death benefit, which is meant to help your family cover your funeral costs or medical bills.
Pro: Near-certain approval — guaranteed issue provides access to a small death benefit to cover final expenses
Con: Cost — high premiums for relatively low coverage amounts
Best for: Seniors or people with terminal illnesses
Mortgage protection insurance
Mortgage protection insurance, also known as MPI, is designed to pay off your remaining mortgage when you die. Unlike other policy types, MPI only pays the death benefit to your mortgage lender, making it a much more limited option than a traditional life insurance policy.
In an MPI, the beneficiary is the mortgage company or lender, instead of your family, and the death benefit decreases over time as you make mortgage payments, similar to a decreasing term life insurance policy. In most cases, purchasing a standard term policy instead is a better choice.
Pro: Access — an MPI policy can be a coverage option for people who can’t qualify for standard term life insurance due to age or health issues
Con: Limited coverage — it only protects mortgage payments
Best for: Anyone with mortgage obligations who’s not eligible for traditional life insurance
Group life insurance
Group life insurance, also called group term life insurance, is one life insurance contract that covers a group of people. It’s usually offered by employers, but may also be offered by unions and trade organizations.
Group term life insurance is often subsidized by the policyholder (e.g., your employer), so you pay little or none of the policy’s premiums. You get coverage up to a limit, usually $50,000 or one to two times your annual salary.
Group life insurance is affordable and easy to qualify for, but it rarely provides the level of coverage you might need — and you’ll probably lose coverage if you leave your job. To fully protect your loved ones, you should buy a term life insurance policy to complement your group plan.
Pro: Convenience — group policies provide guaranteed coverage at little or no cost to employees
Con: Limited coverage — and you usually lose coverage if you leave your employer
Best for: Anyone who’s offered group life insurance by their employer
Accidental death and dismemberment insurance
Accidental death and dismemberment insurance (AD&D) covers you if you die in an accident, or if an accident causes you to lose a hand, foot, or limb. It’s usually offered by employers as an alternative to life insurance, but it’s generally inexpensive if you buy a private policy.
Because AD&D only pays out under specific circumstances, it’s not a suitable substitute for life insurance. AD&D insurance only pays out if you are injured or killed in an accident, whereas life insurance pays out for most causes of death.
Pro: Cost — whether it’s offered as a benefit through your employer or you buy it on your own, policies are generally inexpensive
Con: Limited coverage — AD&D covers you only under specific circumstances, whereas a traditional life insurance policy offers more comprehensive coverage
Best for: Anyone on a tight budget with dependents who would financially suffer in the event of your impairment or death
Supplemental life insurance
Supplemental life insurance, also known as voluntary or voluntary supplemental life insurance, can be used to bridge the coverage gap left by an employer-paid group policy. In other words, it can be purchased to complement a group life insurance policy that doesn’t provide a large enough death benefit.
You’ll generally encounter supplemental life insurance as an optional employee benefit offered in addition to your basic group life insurance, but not all employers offer this benefit. Supplemental policies are typically bought through your employer but can be purchased privately.
Pro: Convenience — guaranteed access to additional coverage when offered as a benefit by an employer
Con: Limited coverage — you’ll usually need an additional term policy to get all the coverage you need
Best for: Anyone looking for easy access to coverage through their employer
Credit life insurance
Credit life insurance is a type of life insurance policy that pays out to a lender if you die before a loan is repaid instead of paying out to your beneficiaries. The policy is tied to a single debt, such as a mortgage or business loan. Your lender is the sole beneficiary of the policy and the death benefit only covers the loan in question.
You’re guaranteed approval and, as you pay down your loan, the death benefit of your policy decreases. If you die while the policy is in force, your insurance provider pays the death benefit to your lender. Mortgage protection insurance (MPI) is one of the most common types of credit life insurance.
Pro: Convenience — credit life insurance can be an option to cover a loan if you’re not eligible for standard life insurance
Con: Coverage limitations — your lender is the beneficiary and the death benefit only covers a specific debt
Best for: Anyone with debt obligations who’s not eligible for traditional life insurance
Joint life insurance
Joint life insurance is a life insurance policy that covers two people. Most commonly, the joint policyholders are married or domestic partners, but they can also be business partners.
Most joint life insurance policies are permanent life insurance policies, which last your entire life and have an investment-like cash value feature that earns interest. Joint term life insurance policies, which expire after a set period, do exist but are less common.
Pro: Convenience — joint policies can cover two people if one of them doesn’t qualify for coverage, or if buying two separate policies is out of budget
Con: Cost & access to death benefit — joint policies are usually more expensive than two separate individual policies, and depending on the type of joint policy, it might take longer for the beneficiaries to receive the death benefit
Best for: Couples who don’t qualify for two individual life insurance policies
There are two main types of joint life insurance policies:
First-to-die: The policy pays out after the first of the two spouses dies. First-to-die is the most similar to an individual life insurance policy. It helps the surviving policyholder cover expenses after the loss of financial support
Second-to-die: The policy pays out the death benefit once both policyholders die. Second-to-die life insurance, typically called a survivorship policy, works best as a windfall to a dependent. It doesn’t provide any income replacement for your partner
Main life insurance types at a glance
Frequently asked questions
What are the two main types of life insurance?
Term and permanent are the two main types of life insurance. The main difference between both is that term life insurance policies have an expiration date, providing coverage between 10 and 40 years, and permanent policies never expire. Permanent life insurance comes with a cash value component — in addition to the death benefit that term policies have — that can be used to save, invest or build wealth. Both its duration and cash value make permanent life insurance many times more expensive than term.
What is the cheapest type of life insurance?
Term life insurance is generally the most affordable and comprehensive type of life insurance because it's simple and has an expiration date. How much you pay for life insurance, however, will depend on your age, gender, lifestyle, and health.
What is the easiest type of life insurance to get?
Term life insurance is usually the easiest type of life insurance to be approved for — especially if you're young and have no major health conditions — but your eligibility will depend on several factors, including your age, gender, lifestyle, and health.
What kind of life insurance do you need?
The right life insurance policy for you depends on your financial situation and your dependents. Term life insurance is the best choice for most people because it’s more affordable, but whole life insurance makes sense for people who need lifelong coverage or those looking for insurance with a cash value.
What types of life insurance are there?
There are many types of lice insurance, but they usually fall into two main categories: term (which lasts for a set term) and permanent (which never expires). Whole, universal, indexed universal, variable, and burial insurance are all types of permanent life insurance. Permanent life insurance typically comes with a cash value and has higher premiums.
What is the most common type of life insurance?
The most common term length for term life insurance is 20 years, according to Policygenius data. Whole life insurance is the most popular type of permanent life insurance, and represented 36% of the U.S. life insurance market in the second quarter of 2021, according to LIMRA, the life insurance research organization. Meanwhile, term represented 21% of the market share in the same period.
