Life Insurance Types

Different Types of Life Insurance

Life insurance policies, generally speaking, can be divided into two groups: term insurance and permanent insurance. As the names suggest, term insurance is designed to be kept for a certain period of time (i.e., the term), while permanent insurance is designed to remain in force for your whole life (i.e., permanently).

These groups can be further subdivided like this:

  • Term Life Insurance
    • Level Term (e.g., 10 year, 20 year, 30 year)
    • Annual Renewable Term (ART)
    • Declining Term
  • Permanent Life Insurance
    • Whole Life (WL)
      • Participating Whole Life (PAR)
      • Non-participating Whole Life (Non-PAR)
      • Interest Sensitive Whole Life
    • Universal Life (UL)
      • Fixed Universal Life
      • Indexed Universal Life (IUL)
      • Variable Universal Life (VUL)
Choosing the best type of life insurance for your needs is an important decision. You should carefully consider all of the features of the life insurance types that you are thinking about and determine which features and benefits are most important for your situation. The table below provides an overview of some of the important features of each kind of life insurance policy. Because choosing the best life insurance policy for your needs is an important financial decision, you should contact a life insurance professional who will help you make a good choice.

Our Life-Insurance-Basics guide is also a handy reference tool that will help you understand the difference between life insurance types.

Life Insurance Types Comparison Table

Term Whole Life Universal Life Variable Life Variable Universal Life
Premium Premiums increase at each renewal Level Flexible Level Flexible
Coverage Usually renewable until at least age 70; for some policies, up to age 95 For life For life For life For life
Death benefit Guaranteed Guaranteed May be guaranteed, depending on policy Guaranteed May be guaranteed, depending on policy
May increase with dividends* Can be increased or decreased Varies relative to cash value investment returns Can be increased or decreased; varies relative to cash value investment returns
Cash value None Guaranteed Guaranteed minimum interest rate Not guaranteed Not guaranteed
May increase with dividends* Varies based on interest rates Fluctuates with subaccount performance Fluctuates with subaccount performance
Policy loans allowed? Not applicable Yes Yes Yes Yes
May be able to borrow up to 100% of total cash surrender value less annual loan interest rate Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy) Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy) Same as whole life, but usually available at lower net interest rate (i.e., pay the interest rate and get a credit back to the policy)
Cash withdrawals allowed? Not applicable No Yes No Yes
Cash value account growth No cash value account Insurer  determines guaranteed cash value and declares dividends based on performance of its general investment portfolio* Insurer determines cash value interest crediting rates based on current interest rate returns to the company Cash value account growth depends upon the investment performance of the subaccounts you choose Cash value account growth depends upon the investment performance of the subaccounts you choose

*Dividends are not guaranteed.

Note: Any guarantees associated with payment of death benefits, income options, or rates of return are subject to the claims-paying ability of the insurer. Policy loans and withdrawals will reduce the policy’s cash value and death benefit and may cause the policy to lapse.  Withdrawals may be subject to surrender charges and income tax, and a 10% penalty may apply to withdrawals from a modified endowment contract if made under age 59&#189.

Note: Variable life and variable universal life insurance policies are offered by prospectus, which you can obtain from your financial professional or the insurance company. The prospectus contains detailed information about investment objectives, risks, charges, and expenses. You should read the prospectus and consider this information carefully before purchasing a variable life or variable universal life insurance policy.

Different Life Insurance Types for Different Needs

Each type of life insurance is best suited for a particular purpose. Term insurance, for example, is a great type of policy to have if you are looking for a large amount of low cost coverage for a specific period of time. Whole life insurance, on the other hand, is the best life insurance to own if you want or need coverage to last for your whole life. As a financial advisor with a fiduciary duty to my clients, I recommend all different life insurance types depending on their specific needs. (You might want to read my “term vs. whole life” article for more information about the life insurance types that might be right for you.)

The kind of life insurance policy that you have can make a big impact on your overall financial plans. If we can assist you in any way, please feel free to call us at (877) 883-3561.

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About The Author

Richard Eddy

Founder of Rates4Term.com and Cona Financial Group Richard Eddy has been assisting clients with their life insurance needs since 2005. He is an expert helping people find the right policy to fit their specific situation. In addition to insurance planning, he is also experienced in a wide range of financial planning topics including investment and portfolio analysis, tax planning, retirement planning and estate preservation strategies. You can call Richard toll-free at (877) 883-3561.