Page Reviewed / Updated – May 9, 2022

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.

Overview of the Different Types of Life Insurance

Type of Life Insurance Term Permanent Cash Value/Investment Component Medical Exam Not Required
Term life insurancex

some carriers
Whole life insurance xcash value
Universal life insurance
xcash value
Variable life insurance
xinvestment component
Simplified issue life insurancexx
Guaranteed issue life insurancexx
Group life insurancexx

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 insuranceOffers temporary coverage
Low premiums No cash value or savings component
Tax-free death benefitsMay 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 InsuranceDeath benefit often smaller than term life insurance
Built-in savings componentHigher 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 coverageNo guaranteed level premium
Ability to adjust the death benefitIncreased risk — volatile markets could mean low cash value
Flexibility with premiums
Potential cash value growth

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 benefitDesigned 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 coverageLower death benefits than term and whole life insurance
Doesn’t require a medical examMore 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 coverageHigh premiums
Guaranteed payment to policy beneficiariesSmaller 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 freeBasic coverage
Reasonably easy approval processLow death benefit
No medical exam requiredLimited policy options