There are three main types of life insurance: Term life, whole life and universal life. If you’re shopping for life insurance, one of the first steps is choosing the right type of life insurance.
Let’s look at the pros and cons of each so you can make the right decision based on your goals.
Term life insurance
With term life insurance, you choose the length of the policy and the amount your beneficiaries will get. Term life does not have any cash value, which is why it’s among the cheapest types of life insurance.
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Whole life insurance
Whole life insurance pays out no matter when you die. It’s often among the most expensive ways to buy life insurance because of everything it guarantees: Payments stay the same, cash value builds at a predictable rate, and the amount of death benefit is guaranteed.
You can get whole life insurance that doesn’t require a medical exam, and some policies promise you won’t be turned down. However, if you’re in pretty good health, it’s usually cheaper to get a policy that uses a medical exam or other medical information.
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Universal life insurance
Universal life insurance is lifelong insurance, just like whole life. But it doesn’t have all the guarantees within whole life. There are a few varieties of universal life insurance. Some build cash value. Some let you vary your premium payments and death benefit within certain limits, in case your needs change down the road.
Read our story about universal life insurance to better understand the important differences.
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Other types of life insurance
There are other types of life insurance that are helpful in certain situations.
Survivorship life: Insurance for two lives in one policy, such as a husband and wife. It can pay out when the first spouse dies or when the second dies, depending on financial needs. It can be cheaper than buying two separate life insurance policies.
Accidental death: These pay out only if you die by accident, such as a car crash. They don’t pay out if you die by illness or old age. There can be many exclusions, so read the policy carefully before you buy. If your family would suffer financially if you died, a term life, whole life or universal life policy would likely be a better choice.
Mortgage life: If you’ve ever bought a house, you likely received offers for mortgage life insurance. The death benefit is tied to the balance of your mortgage and is paid to the lender if you die. A term life or whole life policy provides more flexibility because your family can use the money for anything they need, such as daily living expenses or college tuition.