Types of life insurance coverage

The right type of life insurance for you depends on your unique financial needs. Here are the best plans for different circumstances.

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You know buying life insurance protects your family financially. But a new parent buying a policy to support their growing family has very different needs than a retiree making end-of-life plans. 

Term life insurance is the most affordable and best choice for most people. But everyone’s financial needs are different, and some people may need a different type of life insurance. Here are the different types of life insurance you may need depending on your situation.

Key Takeaways

  • Term life insurance is the best choice for paying off debts, replacing your income, and saving for the future.

  • Permanent life insurance may be a good option for high-net-worth individuals who want to build more tax-deferred wealth.

  • Non-traditional policies, like final expense insurance, are best for people who do not qualify for a term or whole life insurance policy because of their age or health.

Life insurance for family financial support 

You're probably buying life insurance to support your family—whether that family includes a spouse, children, your parents, or some combination of the three—for a few main purposes: 

  • Income replacement: For everyday and long-term expenses and new expenses, like childcare or house cleaning

  • Covering debts: To continue paying down shared debts, like a mortgage or cosigned private loans

  • Future planning: Saving for education costs or establishing a nest egg for your children

We recommend: Term life insurance.

Term life lasts for a limited period (usually 10 to 30 years) and expires or can be easily canceled once you no longer need it. Term policies offer the lowest premiums —i f you’re in your 30s, you’ll pay $20 to $30 for a $500,000, 20-year policy — so you’ll be able to take care of your family’s needs at a pretty low cost. 

→ Learn more about buying life insurance for your family

Life insurance for building wealth

If you’re a high-income earner who has maxed out your other tax-advantaged investment accounts and can afford to pay higher premiums, you may benefit from using life insurance to grow your savings.

We recommend: Permanent life insurance

Specific permanent life insurance plans come with lifetime coverage and an investment-like feature called the cash value that earns interest over time. They can be used to:

  • Grow tax-deferred retirement savings using the cash value, which earns interest at a rate set by your provider or based on market performance.

  • Cover estate taxes for heirs by placing the policy in an irrevocable trust.

  • Increase the inheritance you pass on by adding cash value earnings to your death benefit (only available on some policies with flexible or increasing benefits).

Whole life insurance is the most common cash value policy. The cash grows at a fixed rate controlled by your insurer. Other types of cash value insurance, like universal and variable life insurance, come with riskier and more complex investment options but higher potential for gains.

It’s important to work with a financial professional if life insurance is part of your estate or retirement plan so you can make informed investment choices.

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Life insurance for people with serious medical conditions

Having serious health issues means life insurance may be an even higher priority, but depending on the severity of your condition, you may not be eligible for traditional life insurance. Non-traditional alternatives cost more and offer lower coverage amounts, but are worth considering for financial protection if you can’t get a traditional policy.

We recommend: 

  • Group life insurance: Usually offered by employers and rarely requires health information for approval, but coverage maxes out at $50,000 or two to three times your salary and you lose the policy if you change jobs.

  • Guaranteed issue life insurance: A type of final expense insurance with near-guaranteed approval that offers up to $25,000 in coverage for people age 50 and older.

  • Joint life insurance: Permanent insurance that covers two people under one policy that helps you get covered if your spouse qualifies.

  • Spousal insurance: Some insurers offer coverage for a non-working spouse, but restrictions may apply.

If you support someone with an illness, whole life insurance is the best way to ensure they or their loved ones have financial support after you pass away. 

Life insurance for end-of-life expenses 

As you get older you’ll likely have fewer dependents and debts, but you may not have enough saved to pay for end-of-life expenses like:

  • Final medical expenses: Out-of-pocket medical costs can be $9,000 or more in the last year of life, [1] depending on your health insurance.

  • Funeral costs: The average funeral costs $7,000.

  • Long-term care: Programs like Medicare may pick up some of the bills, but a private room in a nursing home can cost $105,852 per year.

We recommend: Final expense insurance

If you’re a senior or approaching retirement age, it’s possible that term life insurance won’t fit your needs due to the higher coverage options or term limits. Final expense offers lifetime coverage in small amounts — $40,000 or less. 

Premiums are extremely high, but the application doesn’t require a medical exam, making it easier for older people with serious health conditions to buy coverage.

Every person’s life insurance needs are different, but finding the right type of life insurance coverage for your financial needs doesn’t have to be. An independent insurance agent can help you compare policies and find the right coverage for your circumstances.

Frequently asked questions

What are the different types of life insurance coverage?

Life insurance coverage is intended as an income replacement, but can also be used to build tax-deferred savings and cover end-of-life expenses.

What type of life insurance policy fits my coverage needs?

Most people only need term life insurance to provide for burial and medical costs, daily expenses, debts, and savings. Permanent policies may be good for investors or those with complex health concerns.

How do I find out what type of life insurance coverage I need?

Speaking to an independent insurance agent or certified financial planner is the best way to discuss your needs and compare a wide array of policy options.