Type of Life Insurance
Many different types of life insurance are available to meet all sorts of consumer needs and preferences. Depending on the short- or long-term needs of the person to be insured (or their family members), the choice of whether to select temporary or permanent life insurance will be a major consideration.
Term life insurance
Term life insurance is designed to last a certain number of years, then end. You choose the term when you take out the policy. Common terms are 10, 20, or 30 years. The best term life insurance policies balance affordability with long-term financial strength.1
Level term, the most common type of term insurance currently being sold, pays the same amount of death benefit throughout the policy's term. Other types of term insurance include:
Decreasing term life insurance is renewable term life insurance with coverage that decreases over the life of the policy at a predetermined rate.
Convertible term life insurance allows policyholders to convert a term policy to permanent insurance.
Renewable term life insurance provides a quote for the year the policy is purchased. Premiums increase annually at renewal. These plans usually provide the least expensive term insurance in the first year.
Term that lasts until a specific age, such as term-to-65.
Many term life insurance policies allow you to renew the contract on an annual basis once the original term ends. However, since the renewal premiums are based on your current age, the cost can rise steeply each year. A better solution for permanent coverage is to convert your term life insurance policy into a permanent policy. This is not an option on all term life policies, so look for a convertible term policy if this feature is important to you.
Permanent Life Insurance
Permanent life insurance is more expensive than term, but it stays in force throughout the insured’s entire life unless the policyholder stops paying the premiums or surrenders the policy. Some policies allow for automatic premium loans when a premium payment is overdue.2
Whole life insurance is one type of permanent life insurance where the premium and death benefit generally remain the same each year. It includes a cash value component, which is similar to a savings account. Cash-value life insurance allows the policyholder to use the cash value for many purposes, such as to take out loans or to pay policy premiums.
Universal life (UL) insurance is another type of permanent life insurance with a cash value component that earns interest. Universal life features flexible premiums. Unlike term and whole life, premiums can be adjusted over time. UL also lets the policyowner choose between level death benefit or increasing death benefit options.
Indexed universal life (IUL) is a type of universal life insurance that lets the policyholder earn a fixed or equity-indexed rate of return on the cash value component.
Variable universal life (VUL) insurance allows the policyholder to invest the policy’s cash value in an available separate account. It also has flexible premiums and can be designed with a level or increasing death benefit.