Insurance
The five main types of policies you may encounter when shopping for a life insurance policy include term life insurance, whole life insurance, universal life insurance, variable life insurance, and burial or final expense life insurance.
There are many different types of life insurance policies on the market to consider, but they’re all grouped in two main categories: term life insurance and permanent life insurance. Term — the most popular type of life insurance — lasts for a specific amount of time, while permanent lasts your entire life.
The right policy for you will depend on your personal circumstances, unique needs, how much coverage you need, and how much you want to pay for it. This guide covers the most common types of life insurance policies on the market, including information on how they work, their pros and cons, how long they last, and who they’re best for.
Whole Life
Insurance
Whole life insurance is the most popular type of permanent life insurance because of its simplicity and lifelong duration. Its cash value — an investment-like, tax-deferred savings account — earns interest at a fixed rate.
Term Life
Insurance
Term is the most popular type of life insurance for most people because it’s straightforward, affordable, and only lasts for as long as you need it. Term life insurance is one of the easiest and cheapest ways to provide a financial safety net for your loved ones
Universal Life
Insurance
Universal life insurance is a flexible permanent life insurance policy that lets you decrease — or increase — how much you pay toward premiums. If you decrease how much you spend on premiums, the difference is withdrawn from your policy’s cash value.
A universal life insurance policy can be a good fit if you’re looking for some flexibility in your life insurance — and you can afford that flexibility; a universal policy is more expensive and complicated than standard whole.
Variable Life
Insurance
Variable life insurance is a type of permanent coverage that allows you to invest the money from your cash value in various funds offered by the insurance company, including mutual funds.
While variable life insurance comes with a guaranteed minimum death benefit, the cash value amount is not guaranteed and will depend on market conditions. You may earn more interest than you would with a whole life insurance policy, which gives you a fixed interest rate, but you, as the policyholder, will bear the investment risk if the fund underperforms.
Final Expense
Insurance
Final expense insurance, also known as burial insurance, is a type of life insurance designed to pay a small death benefit to your family to help cover end-of-life expenses. Unlike traditional life insurance, which is meant to replace decades’ worth of income, burial insurance is usually suited to older adults who want a smaller policy to cover their funeral costs.