If you’re researching the different types of life insurance policies available, then you’re probably wondering what the best type of life insurance policy is to protect you and your family.
There are several types of life insurance policies available that we’ll go over in detail.
And which one is best depends on your situation entirely (and maybe even your budget).
Let’s break them all down.
As a rule of thumb:
– Term life insurance is good for families who would be devastated financially if a breadwinner was to pass. It’s the most popular type of life insurance.
It allows you to get A LOT of coverage at a very low cost, but only for a specific time. Most people buy term life insurance until their kids are an income earning age or until they hit retirement age.
– Universal life insurance and whole life insurance are more expensive but can give you added benefits such as cash value you can access later on in life or a guaranteed level premium for the rest of your life (see guaranteed universal life insurance and final expense life insurance below).
These rule of thumb’s above are generalizations, but important to understand if you’re searching for the best type of life insurance.
So let’s get into it.
Types of Life Insurance: The Full List
Term Life Insurance
- Level term
- Decreasing term
- Annual renewable term
- Accidental life insurance
Universal Life Insurance
- Guaranteed Universal Life Insurance
- Indexed Universal Life Insurance
- Current Assumption
Whole Life Insurance
- Single Premium
- Final Expense
We’ll go over what each type of life insurance is and the important information you should know about them.
If at any point you have a question, complete the quote form on this page and we’ll be in touch.
Here the main highlight of term life insurance is it’s the most affordable type of life insurance policy.
There are 4 types of term life insurance policies:
1) Level term
2) Decreasing term
3) Annual renewable term
4) Accidental life insurance
Level Term Life Insurance
Level term life insurance is the most popular kind of life insurance in the U.S.
It’s offered by almost every life insurance company privately, through workplaces, and even the government (for government employees or military).
The payments are guaranteed to remain level and coverage amount is guaranteed to remain level as well. There are no moving parts.
Most term life insurance policies on the market are level term life insurance unless stated otherwise.
Level term life insurance is available in 10, 15, 20, 25, 30, 35 and 40 year terms.
No matter what happens to your health during the length of the policy, the insurance company cannot increase your premiums. However, your coverage will expire at the preset term.
When selecting the term length, consider the age of your children, retirement age as well as the time remaining on any significant outstanding debts (for many people this would be your mortgage payment).
I personally chose a 30-year term because we’re just starting a family and will soon finance a home with a 30-year mortgage.
If I pass away within the next 30 years, I don’t want to leave my spouse with a mortgage payment.
If your situation isn’t as cut and dry and you’re not sure which term length to consider, please fill out the instant quote form on this page and we’ll be happy to assist you with this decision.
You can also purchase term life policies without taking an exam, if that’s something you’d like to skip.
Related Post: Term Life Insurance for Seniors
Decreasing Term Life Insurance
This is a form of life insurance that is no longer relevant. This is where the coverage amount of a life insurance policy decreased every year.
This type of policy was used primarily to cover mortgages over a decade ago.
It was seen as a tool to efficiently cover a mortgage payment because as the mortgage liability went down every year, so does the coverage amount.
The reason it’s no longer used much and there’s only a few companies who still sell it is level term life insurance is much less expensive.
You can buy coverage cheaper and have the coverage amount guaranteed to never go down.
Annual Renewable Term Life Insurance
Annual Renewable Term is a term life insurance policy that goes up in payments every year.
It starts off cheaper than a level term life insurance policy but eventually (usually in the first few years) becomes more expensive.
This type of policy is typically used if you only need life insurance for a few years or if you plan to convert your life insurance policy in the near future.
Accidental Term Life Insurance
One other type which is somewhat similar, but different for how it pays out, is called accidental death and dismemberment. It pays when you die, but only if you pass by way of an accident.
It’s a very inexpensive form of term life insurance and there’s no health questions to qualify.
Be careful though, each accidental term life insurance policy has exclusions – read those carefully. Feel free to reach out to us for the best value accidental term life insurance policy.
Final Thoughts on Term
For most of America, if you’re in your income earning years – term life insurance will likely be at least part of your life insurance planning.
Get enough to cover your mortgage and replace your income if you pass away unexpectedly.
Also consider if you’ll still need coverage longer than your term, as once the term expires, the premium payments will increase and they might not be as affordable as they once were.
If you think you’ll need coverage after the term, consider permanent insurance or a combination of both. Many times savvy consumers purchase a term life insurance policy AND a smaller permanent policy.
Universal Life Insurance
Universal life insurance is the most flexible of all life insurance policies and there’s several types you can purchase that either have strong guarantees or build cash value that you can access during your lifetime.
The main types of universal life insurance are:
- Guaranteed Universal Life Insurance
- Indexed Universal Life Insurance
- Current Assumption Universal Life Insurance
- Variable Universal Life Insurance
Guaranteed Universal Life Insurance
Consider guaranteed universal life insurance “term for life”. The policy has guaranteed level payments until you reach a certain age – typically age 121. So basically for the rest of your life.
When considering a guaranteed universal life insurance policy, consider the age the policy goes up to – make sure you ask that question to your agent. Some policies are only guaranteed to age 90 or sooner and with how long people are living these days, that’s a gamble.
Treat a guaranteed universal life insurance policy like a commodity. Find the lowest priced option and just make sure the guarantee periods are the same so you’re comparing apples to apples.
Right now there’s a guaranteed universal life insurance policy that has the best rates on the market AND has living benefits, which means if you have a heart attack, cancer, stroke or any other of their 16 triggers, you can access the death benefit. It’s an incredible value. Complete a quote form on this page and ask us for the company name (we don’t want to tip our competitors).
Indexed Universal Life Insurance
If you’re looking to build cash value in a policy, Indexed Universal Life Insurance could be a great choice if structured properly.
The premise behind Indexed Universal Life is you cannot lose cash value in a down market, there are guaranteed minimum returns and you participate in the upside of the market as well – although that’s capped as well.
If looking into an indexed universal life insurance policy, make sure it’s structured properly and funded to the MEC limit.
Get multiple agents to provide you illustrations and compare them. Just going through that process you’ll learn the ins and outs of Indexed Universal Life Insurance and if you want us to review what you currently have, we’d be happy to point you in the best direction.
Current Assumption Universal Life Insurance
Current assumption universal life insurance is a very flexible universal life insurance policy.
You can increase or decrease the coverage amount. You can change your premium payments during the policy to increase cash value or lower the payments.
This is the “old” type of universal life insurance that isn’t sold as much since other types of life insurance have come out. A lot of these types of policies have been changed so much that they’re no longer effective and can leave you without coverage.
We often times exchange these types of policies to get consumers into a policy with more guarantees, albeit less flexibility.
We believe you should buy either a guaranteed universal life insurance policy if you’re looking for the most amount of death benefits for the lowest cost and guaranteed level payments for the rest of your life OR an indexed universal life insurance policy if you’re looking for a vehicle to build cash value.
Variable Universal Life Insurance
While it’s a much less popular choice, a variable universal life insurance policy can allow you to have a portion of your dollars go into the stock market.
Again, these are rarer, and often best for younger applicants who have extra room for risk. They can only be purchased from a registered representative who has licensing for these products.
Whole Life Insurance
Whole life insurance is a permanent form of life insurance that builds up cash value.
There are several different types of whole life insurance
- Participating and Non-Participating Whole Life
- Single premium whole life
- Final expense whole life insurance
Participating and Non-Participating Whole Life
Participating whole life insurance is where a policyholder receives dividend payments from the life insurance company based on the performance of the life insurance company.
A non-participating whole life insurance company does not receive dividends but does have some sort of guarantee on the cash value.
So what does this all mean to you?
There’s a lot more upside and flexibility with participating whole life.
However, you risk a down year for the life insurance company and not have your cash value perform well.
Our view always go with a participating whole life insurance product, just make sure you do it with the right company – there are so many good ones out there who have consistently strong dividends paying history.
Single Premium Whole Life Insurance
This policy is just how it sounds. You make one premium payment to buy up some death benefit and that death benefit and cash value can grow.
These policies are typically used with seniors who have lump sums of cash laying around in their bank accounts or in a CD. With buying a single premium whole life insurance policy you can pass on more money to your heirs and still have access to cash if you need it…and that cash value and death benefit can grow!
Final Expense Whole Life Insurance
At Rootfin, we believe this is the fastest growing whole life insurance product in the U.S.
Final expense whole life insurance is meant for seniors between the ages of 50-85 who are on a fixed income. It’s a very affordable policy that takes a lot of higher risks.
If you have any questions about what type of life insurance is right for you, fill out the quote form on this page and we’d be happy to help.
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