Ashlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Written By Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Deputy Editor, Insurance Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
Michelle Megna Lead Editor, InsuranceMichelle is a lead editor at Forbes Advisor. She has been a journalist for over 35 years, writing about insurance for consumers for the last decade. Prior to covering insurance, Michelle was a lifestyle reporter at the New York Daily News, a magazine.
| Lead Editor, Insurance
Updated: Jun 27, 2023, 1:14pm
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If you’re in the market for life insurance, you’ll quickly discover that there are many options. Choice is a good thing, but it does mean that you’ll have to understand the options before you can decide on the type of life insurance that best fits your needs.
There are two main types of life insurance: term life and permanent life. Then, there are several subtypes of permanent life insurance to consider.
To get you started, here’s an overview of types of life insurance and the main points to know for each.
Life insurance types are often distinguished by how long the policy can last, whether it builds cash value, and whether the premiums or death benefit can be variable.
Level term period varies, but often can be 10, 15, 20 or 30 years Multiple options: Level, annual renewable, decreasing Whole life Universal life Might be flexible Might be flexible Variable life/variable universal life Might fluctuate Burial life Survivorship life Permanent, typically Paid out after second person dies Mortgage life Policy in effect for duration of mortgage May fluctuate Declining death benefit as you pay down mortgage Credit life Permanent, typically Pays off remaining debt to the lender Supplemental life Connected to your employment Low or no cost See More See LessThe basics:
How it works: Term life insurance has a specific end date for the level term period, when rates stay the same. After this period you can renew the policy, but at higher rates each year. Choices of coverage lengths are generally 5, 10, 15, 25 or 30 years. It’s the cheapest way to buy life insurance because you’re buying only insurance coverage and not paying for cash value life insurance.
Who is it for: Term life insurance is ideal for people who want life insurance coverage for a specific debt or situation. For example, some people buy it to cover their working years as income replacement for their family in case they pass away. Some people buy term life to cover the years of a mortgage or other large debt.
Downside: If you still need coverage after the level term period expires, you could find the renewal rates to be unaffordable. And buying a new life insurance policy could be extremely pricey based on your age and any health conditions you’ve developed.
The basics:
How it works: Whole life insurance can provide coverage for the duration of your life. An account within the policy builds cash value over time by using part of your premium payment and adding interest. A policy will have built-in guarantees that the premium will not increase, the death benefit remains the same, and the cash value will earn a fixed rate of return.
Who is it for: Whole life is suited for people who want lifelong coverage and are willing to pay for the guarantees provided by the policy.
Downside: Because of the guaranteed features, whole life insurance is one of the more expensive ways to buy life insurance.
The basics:
How it works: Universal life insurance (UL) can be hard to understand because there are a few varieties and with very different features. Universal life insurance can be cheaper than whole life insurance because it generally doesn’t offer the same guarantees.
With some forms of universal life you can vary premium payments amounts and rejigger the death benefit amount, within certain limits. UL policies often have a cash value component.
Who is it for: Universal life insurance can be good for someone looking for lifelong coverage. Some varieties of UL are suited for people who want to tie their cash value gains to market performance (indexed and variable universal life insurance).
Downsides: If cash value is your main interest, not all UL policies guarantee you’ll make gains. And if you’re interested in flexible premiums payments, you have to stay on top of your policy’s status to make sure that the policy’s fees and charges don’t deplete your cash value and cause it to lapse. Understand what’s guaranteed within a UL policy and what isn’t.
The basics:
How it works: You may see this kind of policy called burial, funeral or final expense insurance. No matter the name, it’s usually a small whole life insurance policy that’s intended to pay only for funeral costs and other final expenses. Burial insurance is often offered as a policy that you can’t be turned down for and that doesn’t require a medical exam.
Who is it for: These types of policies are generally for people in poor health who don’t have other life insurance options and who need insurance for funeral expenses.
Downsides: Burial insurance policies are expensive, based on the amount of coverage you get for your money.
Burial insurance policies also have a safeguard for the life insurance company: Your beneficiaries won’t get the full death benefit if you pass away within two or three years after buying the policy. Check the policy’s timeline for these “graded death benefits.” Your beneficiaries might receive only a refund of the premiums you paid in, plus some interest.
The basics:
How it works: These joint life insurance policies ensure two people under one policy, such as a husband and wife. The payout to beneficiaries is made when both have passed away. You may see them called second-to-die life insurance, but for understandable reasons the industry is moving away from this name.
Survivorship life insurance can be less expensive than buying two separate life insurance policies, especially if one of the people has health issues.
Who is it for: Survivorship policies can be beneficial in estate planning when the life insurance money is not needed by a beneficiary until both of the insured people have passed away. Survivorship life insurance might be used to fund a trust, for example. It’s also suited for high net worth couples who want to provide money to heirs for estate taxes. Or it could be used by a couple to provide a donation to charity.
Downside: If two spouses are insured and one would suffer financially if the other passed away, this is not the right policy type. The surviving spouse does not receive any life insurance benefits. The payout is only made when both have passed away.
The basics:
How it works: Mortgage life insurance is designed to cover only the balance of a mortgage and nothing else. This policy type is different from the life insurance types above in two major ways:
Who is it for: Mortgage life insurance is intended for people who are primarily concerned about their family being burdened by the mortgage if they pass away. It can also be appealing to someone who doesn’t want to take a medical exam to buy life insurance.
Downside: This type of policy won’t provide financial flexibility for your family because the payout goes to your mortgage lender.
If you’re looking for life insurance to cover a mortgage or other debts, you’re better off with term life insurance. You can choose the term length and amount, and provide more than just mortgage money to your family. Your family can use a payout for any purpose. They may decide to use the money elsewhere.
The basics:
How it works: Like mortgage life insurance, this insurance covers a specific debt. When you take out a loan you might be offered credit life insurance. The payments can usually be rolled into your loan payments. The life insurance payout is the balance of the debt and it’s paid to the lender, not your family.
Who is it for: If you’re concerned about how your family would pay a certain debt if you passed away, credit life insurance might look appealing and convenient. It can also be attractive because there’s no medical exam required to qualify.
Downside: Credit life insurance is very narrow and doesn’t allow financial flexibility in the future. You’re probably better off with term life insurance, which you can use to cover many concerns, from debt to income replacement to funeral expenses. A broader policy like term life will give your family more financial options if you pass away.
The basics:
How it works: The life insurance you may have through work is supplemental life insurance, also known as group life insurance. It sets rates based on the group, not the individual.
Who is it for: Because usually it’s free or inexpensive, group life insurance is a good value. It’s good as supplementary coverage to your own individual life insurance policy.
Downside: If you lose the job you generally lose the life insurance, too. That’s why it’s best to have your own life insurance that’s not tied to the workplace. Plus, on your own you can buy higher amounts of insurance.
Helping You Make Smart Insurance DecisionsGet Forbes Advisor’s ratings of the best insurance companies and helpful information on how to find the best travel, auto, home, health, life, pet, and small business coverage for your needs.
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Insurance companies use life insurance underwriting to assess a person’s health and risk—and decide what to charge for premiums.
The type of life insurance that’s best for you depends on your budget and why you need coverage. Someone who wants to make sure their loved ones have money to pay for a funeral requires much different life coverage than a person who wants coverage that could pay off a $300,000 mortgage.
Here’s a look at the best life insurance based on needs and goals.
