Choosing the right life insurance plan can be confusing. Every type of life insurance has different term coverages, medical requirements and death benefit payouts. It’s essential for insurance applicants to understand what types of coverage are available to them to ensure they get the most value out of their insurance policy. This article takes a closer look at a few of the most common types of life insurance.
Term Life Insurance
Term life insurance provides coverage for a specific length of time and is only paid if death occurs within the policy term. Coverage can be for as little as 1 year or up to 30 years. Many insurance policies divide terms into 5-year increments. Term life insurance policies are often affordable, and some carriers don’t require a medical exam to receive approval. There are three common types of term life insurance:
- Level term: The death benefit stays the same during the entire coverage period.
- Decreasing term: The death benefit lowers over time.
- Renewable: Coverage can be renewed yearly. Premiums are adjusted based on the applicant’s age and health status.
Term life insurance is ideal for younger adults who want to pay a lower insurance premium.
Pros and cons of term life insurance
| Pros |
Cons |
| Most affordable type of life insurance | Offers temporary coverage |
| Low premiums | No cash value or savings component |
| Tax-free death benefits | May require applicants to be 60 or younger |
Whole Life Insurance
Whole life insurance is also known as permanent life insurance and lasts until the insured’s death. While this type of insurance is more expensive than term life, it also builds cash value. Premium payments remain level throughout the duration of the policy, which allows insured parties to minimize the risk of increased premiums due to age. Death benefits are paid out directly to the primary beneficiary.
- Coverage lasts until the insured’s death.
- Premium remains the same throughout the duration of the policy.
Pros and Cons of whole life insurance
| Pros |
Cons |
| Permanent Insurance | Death benefit often smaller than term life insurance |
| Built-in savings component | Higher premiums |
| Level premiums | Fixed death benefit |
Universal Life Insurance
Universal life insurance is similar to whole life insurance, except there’s more flexibility to adjust premiums and death benefits. It’s designed for all types of coverage needs. There’s also a cash value component that’s separate from the death benefit. Coverage is provided until the insured’s death, provided premiums are paid on time. Beneficiaries are paid upon death, and it’s possible to borrow funds against the policy’s cash value. Universal life insurance policies often allow policyholders to adjust the amount of their premiums and death benefits.
- Designed for all types of coverage needs
- Lifelong coverage for the policyholder
Pros and cons of universal life insurance
| Pros |
Cons |
| Lifelong coverage | No guaranteed level premium |
| Ability to adjust the death benefit | Increased risk — volatile markets could mean low cash value |
| Flexibility with premiums |
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| Potential cash value growth |
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Variable Life Insurance
Variable life insurance combines life insurance and investment. Individuals pay a premium, which is then invested into investment options such as mutual funds. A death benefit is also provided, and policyholders have the option to borrow a portion of the policy’s cash value without paying federal taxes.
- A mixture of life insurance and investment
- Ability to take out loans against the insurance policy
Pros and cons of variable life insurance
| Pros |
Cons |
| Level death benefit | Designed for long-term savings |
| Potential to earn higher returns | Limited investment options |
| Flexible premiums | |
Simplified Issue Life Insurance
A simplified issue life insurance policy can be issued without the need for a medical exam. These policies often offer instant approval because they require minimal health information. Premiums for simplified issue life insurance might be higher than term or whole life insurance policies. There’s also more risk involved with this type of policy. Simplified issue life insurance is only available to individuals within a specific age range, and severe medical conditions or terminal illnesses may prevent applicants from being approved.
- It doesn’t require a medical exam.
- Applicants must meet specific age requirements.
Pros and cons of simplified issue life insurance
| Pros |
Cons |
| Fast coverage | Lower death benefits than term and whole life insurance |
| Doesn’t require a medical exam | More expensive than term and whole life insurance |
Guaranteed Issue Life Insurance
Geared toward individuals who are looking for insurance without the need for a medical exam, guaranteed issue life insurance provides permanent coverage until the death of the insured. This type of insurance is also suited for individuals who don’t qualify for other types of life insurance due to health issues. Coverage lasts as long as premium payments are met. However, it’s usually a smaller amount than other life insurance policies.
- Provides permanent insurance coverage
- Option for individuals who were denied previous insurance coverage
Pros and cons of guaranteed issue life insurance
| Pros |
Cons |
| Lifelong coverage | High premiums |
| Guaranteed payment to policy beneficiaries | Smaller death benefit than other insurance types |
| A good option for individuals who don’t qualify for other types of life insurance | |
Group Life Insurance
Group life insurance policies cover a group of people under a single contract. This type of insurance is usually offered by an employer or large-scale organization to its workforce, and rates are generally much lower than the cost of individual policies. Group life insurance policies don’t require a medical exam, and basic coverage is provided for all individuals included in the policy. However, the death benefit is often lower than term or whole life insurance policies.
- Great for employees
- Doesn’t require a medical exam
Pros and cons of group issue life insurance
| Pros |
Cons |
| Inexpensive or free | Basic coverage |
| Reasonably easy approval process | Low death benefit |
| No medical exam required | Limited policy options |
