11 Different Types of Life Insurance Policies Easily Explained

Written by Terumi Davis

Do you feel overwhelmed by all the different types of life insurance policies that are currently available?

Well, you are not alone!

I felt the same way when I had to buy my first life insurance policy before I became an agent.

Whole life, guaranteed issue, variable universal, etc... all of this insurance lingo was complete sensory overload for me!

Do not worry! My desire is to help you navigate these waters, so you can be confident in your knowledge about all the different types of life insurance policies.

Different Types of Life Insurance Policies

Why do you need to purchase life insurance?

If you have a spouse, children or aging parents and they will struggle financially if you die, then you need life insurance!

11 different types of life insurance

Life insurance will help ease the financial burden on your loved ones in case of your unexpected passing.

The proceeds of a life insurance policy will allow your loved ones to maintain the lifestyle that you have worked so hard for.

Keep in mind that the death benefit proceeds from a life insurance policy will be paid out to your beneficiaries tax-free! You read that right, Uncle Sam will not require you to pay taxes on the death benefit!

Here is a list of the various types of policies that I will be covering:

  • Permanent life insurance
  • Term life insurance
  • Whole life insurance
  • Universal life insurance
  • Variable life insurance
  • Variable universal life insurance
  • Guaranteed issue life insurance
  • Simplified issue life insurance
  • Survivorship life insurance
  • Final Expense life insurance
  • Mortgage life insurance


All of these policies will give your family the financial security you desire if you were to pass away. The proceeds from your policy could be used to pay the mortgage or rent, pay off any outstanding credit card debt, cover college tuitions costs or many other living expenses.​

There are two main categories that life insurance policies fall into, permanent and term life insurance. I like to describe it in a way of buying versus renting. Permanent life insurance is like buying a car, whereas term insurance is like leasing a car.

Permanent Life Insurance

With this policy, you will have coverage for the rest of your life as long as you continue to pay your premiums. The premium payment will be the same for the life of the policy, even as you age and/or if your health declines.

When you make your premium payment, part of the money goes towards insuring your life and the other part goes towards an asset called cash value that can be used while you are still living. This cash value accumulates money, similar to a savings account at a bank. You can take out a loan or make a withdrawal against the cash value.

What can you do with this cash value you ask? Well, you can use it cover unexpected emergency expenses, pay college tuition, or maybe even start a new business.

You can even use the cash value on the policy as collateral for a loan from your bank.

The cash value of a permanent life insurance policy is guaranteed to increase every year and it will never go down in value.

When you do take out loan or withdrawal it can reduce the death benefit, decrease the policy's cash value, increase the chance of a policy lapse and lastly it may result in a tax liability. If you were to take out a loan or withdrawal from a life insurance policy, make sure you consult a tax advisor first to see if there are any tax implications.

There are various options when choosing a permanent policy, such as whole life, universal life, variable life and variable universal. Naturally, due to the cash value aspect, permanent policies will have an expensive premium.

Pros:

  • Premium stays constant, never goes up
  • Builds cash value guaranteed
  • Peace of mind that your policy will always provide protection for your family throughout your lifetime

Cons:

  • Expensive (3-10 times higher than the equivalent of term insurance)

Right fit for those that:

  • want a policy to last their entire lifetime
  • want a death benefit and cash value
  • want the ability to access the policy's cash value via loans or withdrawals

Term Life Insurance

This is the most basic type of life insurance and will cover your family for a temporary period of time. It is the most affordable type of policy especially if you are young and healthy.

It offers only a death benefit for your family during a specific period of time, typically 10, 15, 20, 25 or 30 years. You will be paying the same premium every year for the stated term of the policy even if your health has deteriorated during your policy period.

Term life insurance is great for individuals or families that want to cover their financial obligations that will expire for over time, such as a mortgage, child care costs or college tuition. Most of the term policies have a guaranteed renewable at the end of the term policy.

This allows you to extend the term length of your policy without taking another medical exam, a great option for those whose health has deteriorated during the original term policy. You can also exchange your term policy for a permanent policy, a good choice for people who will need permanent coverage as they get older.

Once your term policy expires and you decide not to renew, your death benefit coverage stops.


See how affordable term can be!

Kristine is a 35-year-old non-smoker female in excellent health and she is looking for a $500,000 term policy for 30 years. Her monthly premiums will only be $32.38! See how affordable a term life insurance policy can be. Use the quoter tool on the left and type in your information and you can see how affordable your premiums can be in a matter of seconds!


10 years

20 years

30 years

$100,000

$6.92/mo

$8.75/mo

$11.73/mo

$250,000

$9.00/mo

$11.81/mo

$18.81/mo

$500,000

$12.83/mo

$18.38/mo

$32.38/mo

Pros:

  • least expensive, an ideal choice for families on a tight budget
  • simple to understand
  • you choose the length of the term
  • option to convert to a permanent policy

Cons:

  • no cash value
  • higher premiums once term policy expires

Right fit for those that:

  • only need coverage for a specific time period
  • want the most affordable coverage

Which Type of Policy is Right for Me?

You need to seek the help of an agent that will design a policy that is best for you and your loved ones. Call me today at 800-876-9016 and I will be happy to assist you.

Whole Life Insurance

The premium amount is fixed for the lifetime of the policy and a guaranteed schedule of the cash value.

Pros:

  • offers coverage for a lifetime
  • premium stays the same for your lifetime
  • cash value grows tax-deferred
  • access to cash value

Cons:

  • expensive premiums
  • initial slow growth on cash value
  • premiums and face amount not adjustable

Universal Life Insurance

You have the ability to be flexible with the amount of your premium payment and the amount of your death benefit. By having this freedom, you decide how much will go into the policy's cash value and into the death benefit.

Pros:

  • flexibility with premium payment and death benefit
  • cash value grows tax-deferred
  • ability to access the cash value

Cons:

  • expensive premiums
  • cash value is not guaranteed
  • complex to understand

Variable Life Insurance

You decide where you want the cash component to be parked. The cash value feature is directly related to the equities market. Therefore, the amount of your accumulated funds can go up or down based on the health of the market.

Pros:

  • cash value may have higher growth based on positive equities market
  • set guaranteed death benefit

Cons:

  • expensive premiums
  • higher risk based on market volatility
  • must have knowledge of the equities market

Variable Universal Life Insurance

I like to describe this as if universal and variable life insurance policies had a child together. Just like universal life, you have the ability to adjust the premium and death benefit amounts and the cash value is not guaranteed. Furthermore, like variable life, the cash value of the policy is directly related to the equities market.

Pros:

  • premium and death benefit flexibility
  • potential for higher cash value growth based on performance

Cons:

  • expensive premiums
  • knowledge of equities market
  • high risk, possible loss in cash value
  • complex management involved
talking with an agent

Guaranteed Issue Life Insurance

This is a whole life policy. No medical exam is required and you will not be asked about your medical history.

You are guaranteed coverage as long as you make your premium payments. This is usually a last resort policy for those that are 50-80 years old and were unable to obtain coverage elsewhere.

There are only a limited number of carriers that offer this type of coverage for those under 50 years old.

A caveat of a guaranteed issued policy is that the death benefit will not be available until one to years after the policy has been in force.

This is a very quick and easy route in getting coverage, however since you will be skipping the underwriting process, premiums will be expensive.

Pros:

  • no medical exam and no medical history questionnaire
  • life insurance coverage is guaranteed as long as premiums are paid
  • provides coverage for unhealthy individuals
  • quick coverage

Cons:

  • limitations on death benefit
  • smaller death benefits than a typical policy
  • Very expensive


Simplified Issue Life Insurance

This policy allows you to skip the medical examination. However, you will need to answer questions regarding your medical history and the carrier will review your medical records.

Pros:

  • no medical exam
  • those that need quick coverage
  • death benefit is available once policy is issued
  • less expensive than guaranteed life insurance

Cons:

  • Expensive premiums due to no medical exam

Survivorship Life Insurance

This policy insures two lives and pays the death benefit upon the second death. This type of policy is sometimes less expensive than buying two separate life insurance policies for both individuals.

Pros:

  • good for high net worth individuals with estate taxes
  • good for families with a special needs child
  • less expensive than two separate life insurance policies

Cons:

  • expensive product for younger couples
  • complexities involved if divorce arises

Final Expense Life Insurance

Otherwise known as burial insurance and is marketed to senior citizens that are between the ages of 50-85 years old. You can have the option of having a permanent or term life insurance.

This policy will cover your funeral costs or any other cost associated with your death.

Pros:

  • affordable premiums
  • generally, no medical exam is required

Cons:

  • smaller death benefit

Mortgage Life Insurance

This is a term insurance policy that insures the mortgage against the death of the mortgagee or if you are unable to work.

Once the policy is issued, the face amount of the policy is equal to the loan balance of the mortgage.

The term of the policy is equivalent to the term of the mortgage. The insurance company will determine over time how much to reduce the death benefit, since it will equal the remaining loan balance.

Upon the death of the morgtagee, the death benefit of the policy will be used to pay off the remaining loan balance.

Pros:

  • minimal underwriting (usually no medical exam)
  • mortgage will be paid off upon an untimely death
  • mortgage will be paid off due to disability or illness
  • great for people with health conditions that could not qualify for traditional life insurance

Cons:

  • value of the policy decreases each time mortgage is paid
  • policy benefits the lender more than the borrower
  • benefit payoff automatically goes to the lender to satisfy the mortgage
  • more expensive then traditional term insurance

The Bottom Line

After reviewing all the different types of life insurance policies that are in the marketplace, I hope you have now become more familiar with all the insurance jargon.

As you can understand picking the right type of life insurance is no easy task. What works for one person may not work for another. That is the reason why it is so important to seek the guidance of an independent life insurance agent.

By partnering up with an agent like myself, we can work together to customize the perfect coverage for you at an affordable price. Fill out the quote form on this page and you will receive a free quote and begin applying for life insurance today.

If you prefer, give me a call at 800-876-9016

or send an email to

terumi@tdlinsurancegroup.com

 

 
 
 
 
 

 

 
 
 

 

 

 

 
 

 

 

 

 
 

 

 
 


 
 

 

 
 
 

 

 
 

 

 

Insert Responsive Video
About TDL Insurance Group
About TDL Insurance Group

We work with individuals across the nation to secure the best life insurance rates.

This entry was posted in Life Insurance Basics. Bookmark the permalink.

1 Comment

[…] insurance companies offer many types of life insurance such as whole life, term, no exam policies, and accidental […]

at
Leave A Reply