What are the different types of life insurance?

There are two main types of life insurance: term life insurance and permanent life insurance.

Term Life Insurance

Term life insurance is the type of life insurance most people are familiar with. It pays a cash benefit to your loved ones (also known as your beneficiaries) if you were to pass away during the term. The term is how long the policy lasts. Typical terms are 10, 20 or even 30 years.

The benefits of term life insurance are:

• Affordability. Term life insurance only offers a death benefit, which is the cash paid to your beneficiaries if you pass away during the term. It does not include a savings benefit like permanent life insurance. This makes it the most economical type of life insurance policy, at least initially. Many people are pleasantly surprised to learn just how affordable term life insurance can be. As an example, a healthy 30-year-old can get a $250,000 20-year level term policy for about $13 a month.
• Flexibility. You get to choose how long you want coverage to last based on your needs. Many people pick a milestone like when their kids graduate from college or when they retire for when to stop coverage. Your term can last as little as a year to as long as 30 years or more.
• Simplicity. Getting term life insurance typically involves just two decisions: how much coverage you want and how long you want it to last. A licensed insurance agent can help you choose a coverage amount and term. To get a general idea of how much term life insurance you need, check out our Life Insurance Needs Calculator.
• May not require a medical exam: Many, but not all, types of term life insurance policies require a medical exam. Today, there are options that don’t require you to undergo a medical exam. They typically give you immediate coverage after you fill out an online application and you qualify. However, the coverage amount may be limited as well as more expensive on a dollar-for-dollar basis than traditional life insurance that requires a medical exam.

Permanent Life Insurance

In addition to a death benefit, permanent life insurance has several features that term life insurance does not.

The benefits of permanent life insurance include:

• Lifelong coverage. As its name implies, permanent life insurance covers you for life, as long as you pay your premiums. Many people gain peace of mind knowing they will always having coverage in place.
• Living benefits. A benefit of permanent life insurance is that they can build cash value over time, which accumulates on a tax-deferred basis just like assets in most retirement and tuition savings plans. The money can be used in the future for any purpose, including important milestones such as a down payment on a home, college tuition or retirement. (Just know that withdrawing cash value from the policy will reduce the death benefit if you don’t pay it back.)
• Many options. There are different kinds of permanent life insurance. Some offer a guaranteed rate of return while others let you choose a mix of investments for a variable rate of return. Meanwhile, some require you to pay fixed premiums while others let you vary the amount based on your financial circumstances. Others even let you skip premium payments and increase or decrease your coverage level over time.

Consider a Mix of Term and Perm

With so many types of life insurance policies out there, it can be a little confusing about which one (or ones!) to choose and how to go about getting it. One of the best ways is to work with a licensed insurance agent who can walk you through the entire process. If you don’t have an agent or advisor to work with, check out our agent locator. You can also work directly with an insurance company. Here are company partners that support our non-profit mission and can assist you in getting coverage directly or through one of their agents or advisors. The key is to start today.