How to Choose the Best Type of Life Insurance for You

9 Types of Term & Whole Life Insurance To Consider

Choosing the best type of life insurance for your needs is an important part of financial planning. If you’re new to the world of life insurance, it can be overwhelming.

Not sure how to choose the right type of life insurance policy?

This comprehensive guide starts with the basics (life insurance for beginners) and goes into detail on the different options you have when it comes to choosing between types of life insurance policies.

Types of Life Insurance

What is Life Insurance and Who Needs It?

Life insurance is simply a contract between you and an insurance company. When you purchase life insurance you make monthly payments, or premiums, to keep your policy valid. Premiums vary depending on your age, gender, medical history, and the dollar amount of your life insurance.

The insurer will provide for your family (beneficiaries) with a predetermined amount of money if you die.

The money can be used for:

Life insurance is all about caring for and protecting your family after you are gone. As a general rule, if you have dependents you need life insurance.

What is the Best Age to Get Life Insurance?

Man in 30s looking for life insurance

Experts say 30 is a good age to purchase life insurance. The younger and healthier you are when you enroll, the lower your premiums will be, and you can lock in long term life insurance coverage for very cheap.

Life insurance rates for seniors are significantly higher (usually 2-3 times) than younger people because they have less time to pay the premiums over the course of the policy’s life.

How Much Life Insurance Coverage Do I Need?

Life insurance policies can be flexible and change over time. The amount of life insurance you want to invest in is typically directly related to your income and responsibilities.

When you are at your peak earning potential, with dependents to support, you will need the most life insurance.

Wondering how much is enough?

This chart shows the amount of money your family would need to replace a lifetime of earned income.

Age$25,000 / year$50,000 / year$100,000 / year

As you can see, the need for life insurance typically shrinks as your grow older.  This is because your kids grow up leaving you less financial dependents, your mortgage gets closer to being paid off, other outstanding debts become smaller.

These above estimates may not be exact for your age and salary range, but they are safe estimates based on aggregate data.

There are Only Two Types of Life Insurance Policies

What are the different types of life insurance?

Most insurance policies fall under two main umbrellas:

What is the Difference Between Term and Whole Life Insurance?

The key differences in the two types of life insurance are the period of coverage, the payout, and protection provided.

Different types of life insurance are designed to suit the needs of different individuals at their unique stages of life.

Next is an in-depth look at each type of life insurance policy including how it works, its value, limits, and risks.

About Term Life Insurance

Term life insurance is the most popular form of life insurance. Below, we’ll explain everything you need to know.

What is Term Life Insurance & How Does it Work?

Term life insurance is a policy with coverage for a specific time limit. Normally 15 years, 20 years, 25 years, 30 years, but policies can be longer.

If the person dies during the set term (or time period), the insurer pays a death benefit to the beneficiary. However, if the person does not pass away during that set term, then no payout of any kind is received by the beneficiary. In addition, no part of the premiums is paid back.

Term life insurance is the most basic option that can be purchased. It is affordable because it offers pure death benefit protection only.

If your term ends and you are alive and well, you can typically choose to convert the policy into a permanent policy (if you qualify). You’ll probably have to undergo a health screening and premiums are may be much higher.

The maximum age to qualify for term life insurance is 75-80 years. Most term life insurance policies do not expire until the insured reaches age 95. You can often continue your existing policy by keeping up with your monthly premium payments.

Term Life Insurance Rates By Age

Age, gender, health, and lifestyle choices such as smoking will all play a factor in determining premium rates for term life insurance.

The chart below shows the sample monthly rates for the popular 20-year term life insurance policy with $500,000 of coverage. Both female and male rates are shown, as well as smokers, vs. non-smoker rates.

Keep in mind that typically, smokers can expect to pay 2-5 times more for life insurance than non-smokers. Also, keep in mind that female life insurance rates often run 10-20% lower than male life insurance rates because of differences in life expectancy.

AgeMaleFemaleMale SmokerFemale Smoker

Now that we have an idea of the cost of term life insurance for different age and health groups, let’s take a look at the common types of term life insurance coverage.

Types of Term Life Insurance

Term life insurance is a very general category of life insurance. There are actually four main types of term life insurance.

Level Term Life Insurance

Fixed or level term life insurance is all about locking in a fixed premium payment. Your premium is guaranteed to stay the same for the entire time period of your policy.

The longer the term, the higher the premium will be. 10-year, 20-year, and 30-year terms are all popular fixed life insurance policy plans.

Increasing Term Life Insurance

Maybe you’ve waited until later in life to get life insurance. With this policy, the death benefit your beneficiaries receive increases each year you have the policy.

As the death benefit goes up, so will your premium, usually between 2% and 10%. The increase in the death benefit will match with the increase in your premium. This policy is best for short term users.

Decreasing Term Life Insurance

Decreasing vs level term life insurance payout

A decreasing term life insurance policy is designed for short-term needs. If a certain expense would burden your family, like a mortgage, for example, this type of life insurance policy could be perfect for you.

Designed to cover specific expenses, the amount owed decreases each year. Correspondingly, the death benefit decreases each year as well.

Annual Renewable Term Life Insurance

An annual renewable term life insurance policy is usually an extension of a previous term policy.

It is meant to continue providing coverage for an additional term or terms, up to a certain age, even if your health would cause you to be rejected if you applied for a new life insurance policy.

Notably, a renewable term policy allows you to extend or renew your policy for an additional term with no medical exam. Premiums are based on the age and health of person when they begin the term and policy. This is policy ideal for anyone who may be in declining health.

Other types of term life insurance include:

Bottom Line: If you need short-term coverage and are of the mindset that life insurance is for protection, not investment, then term life insurance is a great choice for you. The major pros of term life insurance are high coverage at affordable rates and the possibility of being insured without a medical exam. The cons are no cash value or living benefits, and expensive renewal.

About Whole Life Insurance

Whole life insurance might be a better fit for you depending on your situation. Here’s what you need to know about whole life insurance.

What is Whole Life Insurance & How Does it Work?

Whole life insurance, also called permanent life insurance is the major alternative to term life insurance.

With this policy, you get coverage for your entire life, even past age 100! A premium amount will be determined and stay the same throughout the course of the policy.

Whole Life Insurance Rates By Age

The chart below shows sample monthly rates for whole life insurance, based on age and good health.

If you enroll in a plan when you are young and healthy, you could lock in an amazing rate that won’t change as you get older or even if your health worsens.

Typically, 85 is the maximum age for enrolling in a whole life insurance policy.

AgeMaleFemaleMale SmokerFemale Smoker

What’s attractive about whole life insurance is that it offers both death benefit protection and builds cash value over the lifetime of the policy.

A whole life policy is often considered a good investment because money in the cash value portion is allowed to grow on a tax-deferred basis.

Funds won’t be taxed until they are withdrawn (you’ll receive a 1099 for the gains), they can grow exponentially over the lifetime of the policy. The best permanent life insurance policies give dividends to their policyholders (also untaxed), which help the cash value grow.

Can You Convert a Term Life Insurance Policy to Whole Life?

Yes. Most term life insurance can be converted to whole life insurance (even without another medical exam) if done before the age of 75.

Different Types of Whole Life Insurance

All types of permanent, or whole life insurance include a death benefit and a cash value, but they differ in how the money is handled and invested.

Here are details on the most popular types of whole life insurance policies.

Universal Life Insurance

Known for being flexible, as the policyholder you are allowed – within certain parameters – to choose how much of your premium dollars will go towards the policy’s death benefit, and how much will go towards the policy’s cash value.

If you like to be in control and know where your money is going, this could be a good fit for you. The money in the cash value component of a universal plan can be borrowed or withdrawn for any reason.

For those that want guarantees, the fastest growing and most popular form of universal life insurance is called guaranteed universal life insurance. This is where premium payments remain level for the rest of your life.

Variable Life Insurance

Want to be involved in investing your money?

The policyholder can actively participate in investment options, such as equities, with variable life insurance. Funds have the potential to grow significantly more than the funds in a standard whole life policy.

However, there is risk involved.

Cash in a variable life policy is subject to the ups and downs of the market. The death benefit can also go up or down – but policy normally guarantees that it will not go below the original amount of death benefit that is purchased.

Guaranteed Acceptance Life Insurance

Worried about being denied life insurance due to preexisting conditions or deteriorating health?

With guaranteed acceptance whole life insurance, you can’t be turned down for health reasons, and you can receive a permanent life insurance policy.

No medical exam is required, and living benefits are still included. Age requirements for this type of coverage are typically age 50-85.

Burial & Final Expense Insurance

Typically purchased by seniors, burial life insurance coverage cover the cost associated with a funeral, headstone, burial, flowers, and memorial service.

Also known as final expense life insurance, this type of policy can help protect the surviving family from bearing that burden. One benefit of this type of policy is insurers are often willing to cover older individuals, even past 85. Also, the premium cost is relatively low and qualifying is simple.

Long Term Care Life Insurance (LTC)

Long term care life insurance usually comes in the form of a special rider available on whole life insurance policies. The rider allows you to withdraw 2% from your death benefit to put towards long term care needs.

However, it is also available as a policy by itself from some companies.

LTC coverage becomes beneficial when your physical or mental abilities are impaired due to aging. As soon as you qualify for benefits, the rider kicks in and you no longer need to pay your premiums to keep the whole life policy in force.

Other types of whole life insurance include:

Bottom Line: If you plan to make your money grow and see life insurance an investment, then whole life insurance is the way to go. The major pros of whole life insurance are guaranteed premiums for life, cash value, opportunity for investment, and possibility of being insured without a medical exam. The cons are that they typically have higher premium rates, and are more complicated than term life insurance policies.

Term Life Insurance vs. Whole Life Insurance

In review, here is a side-by-side comparison of term vs whole life insurance.

Term Life InsuranceWhole Life Insurance
Provides life insurance coverage for a specific amount of time, usually 10, 15, 20, 25, and 30 years.Whole life insurance policies provide life insurance coverage for the entire life of the policyholder.
Maximum age for term life insurance coverage is usually 70.
Some companies provide coverage through age 80 to 95.
Accumulates cash value over the life of the policy through various investment vehicles
Usually provides no cash value accumulation like whole life, but is also less expensive.Cash value can be borrowed against tax-free, and can also be used to pay premiums in some cases.

Plan your future with confidence and protect your family with a quality life insurance policy. With all the details spelled out, you are ready to make an informed decision on which type of life insurance is best for you.

Term vs whole life insurance types

List & Other Types of Life Insurance Policies

If we took the time to explain every type of life insurance on the market, this article would be very, very long. To keep it short and informative, here are some links to some other types of life insurance that we have articles on.

Please feel free to contact us to speak with a professional who can help explain and identify the right type of life insurance for your situation. You can also use our online quoting engine to see rates on different types of life insurance!

List of the Types of Term Life Insurance

List of the Types of Permanent Life Insurance

Life Insurance for High Risk Individuals

Life Insurance for Smokers

Life Insurance for Business Owners

Life Insurance for Families

How to Find the Right Type of Life Insurance Policy

When it comes to finding the best life insurance coverage for your specific situation, all of the options available can become overwhelming.

Being that life insurance is a very big investment designed to protect a very important thing – your family – it is important that you find the right coverage. This is why we suggest that you always work with an independent life insurance agent.

Get term and whole life insurance quotes today with our online quoting engine, or give us a call today to speak with a professional and find the right types of life insurance to protect you and your loved ones.

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