The 5 most common types of life insurance

Five types of life insurance policies you may encounter more frequently include term life insurance, whole life insurance, universal life insurance, variable life insurance, and burial or final expense life insurance.

The two basic types of life insurance policies are term life insurance and permanent life insurance. Term life — the most popular type of life insurance — lasts for a specific number of years (usually between 10 and 30) while permanent life insurance lasts your entire life. All other types of life insurance fall into one of these two main categories.

The right policy for you will depend on your personal circumstances, how much coverage you need, and how much you want to pay for it. This guide covers the most common types of life insurance policies on the market, including information on how they work, their pros and cons, how long they last, and who they’re best for.

Term life insurance

One of the two main types of life insurance is term life. This is the most popular type of life insurance for most people because it’s affordable, only lasts for as long as you need it, and comes with few tax rules and restrictions.

Term life insurance is one of the easiest and cheapest ways to provide a financial safety net for your loved ones.

• How it works: Term life insurance lasts for a set number of years before it expires. You pay premiums toward the policy, and if you die during the term, the insurance company pays a set amount of money, known as the death benefit, to your designated beneficiaries. The death benefit can be paid out as a lump sum or an annuity. Most people choose to receive the death benefit as a lump sum to avoid paying taxes on any earned interest.

• Pro: Affordability — term policies are less expensive than other types of life insurance and generally have lower premiums.

• Con: Length — term has an expiration date, which can align with a mortgage or when your children graduate college. If you’re looking for lifelong coverage, you should opt for permanent life insurance instead.

• Best for: Most life insurance shoppers. Those looking for cheaper life insurance for up to 30 years or longer should buy term life insurance.

Whole life insurance

Whole life insurance is the most popular type of permanent life insurance because of its simplicity and lifelong duration. Its cash value — an investment-like, tax-deferred savings account — earns interest at a fixed rate.

• How it works: Whole life insurance has a guaranteed death benefit and cash value that earns interest over time. A portion of your premium goes toward the cost of maintaining the insurance policy and the rest goes toward the cash value account.

• Pro: Cash value & lifelong coverage — the cash value component can cover endowments or estate plans. And since this coverage lasts for your entire life, it can help support long-term dependents such as children with disabilities.

• Con: Cost & complexity — a whole life insurance policy can be significantly more expensive than a term life policy for the same death benefit amount. The cash value component makes whole life more complex than term life because of fees, taxes, interest, and other stipulations.

• Best for: People who need to diversify their investment portfolio or those with dependents who may need long-term care.

Universal life insurance 

Universal life insurance is a flexible permanent life insurance policy that lets you decrease — or increase — how much you pay toward premiums. If you decrease how much you spend on premiums, the difference is withdrawn from your policy’s cash value. 

A universal life insurance policy can be a good fit if you’re looking for some flexibility in your life insurance — and you can afford that flexibility. A universal policy can be more expensive and complicated than a standard whole life policy, especially as you age and your premiums increase.

• How it works: Universal life insurance allows you to adjust your premiums and death benefit depending on your needs. If, after some time, you decide to stop paying or lower your monthly premiums, you can use the cash value to cover your premiums.

• Pro: Flexibility — you can adjust your premiums based on your financial needs.

• Con: Investment risk — interest earned from the cash value is based on market performance, so it’s not the best option to save money for the future.

• Best for: High earners who are trying to build a nest egg without entering a higher income bracket

Variable life insurance 

Variable life insurance is a type of permanent coverage that allows you to invest the money from your cash value in various funds offered by the insurance company, including mutual funds. 

While variable life insurance comes with a guaranteed minimum death benefit, the cash value amount is not guaranteed and will depend on market conditions.

You may earn more interest than you would with a whole life insurance policy, which gives you a fixed interest rate, but you, as the policyholder, will bear the investment risk if the fund underperforms.

• How it works: Variable life provides the opportunity to invest the cash value in various funds offered by the insurance company, including mutual funds. Investment performance will reflect broader market trends.

• Pro: Gains potential — variable policies may earn more interest than traditional whole life.

• Con: Investment risk — potential for losing money if the funds you picked underperform

• Best for: High earners looking for permanent coverage options to diversify their investment portfolio

The best way to decide on the policy that’s best for you is to talk with a financial advisor and work with an independent broker to find the right policy for your specific needs. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.

Final expense insurance

Final expense insurance, also known as burial insurance, is a type of life insurance designed to pay a small death benefit to your family to help cover end-of-life expenses.

Unlike traditional life insurance, which is meant to replace decades’ worth of income, burial insurance is usually suited to older adults who want a smaller policy to cover their funeral costs.

Because of its high rates and lower coverage amounts, final expense insurance is usually not as good a value as term life insurance.

• How it works: Unlike most traditional policies that require a medical exam, you only need to answer a few questions to qualify for final expense insurance. And there’s little to no waiting period to get covered.

• Pro: Guaranteed coverage — easy access to a small benefit to cover end-of-life expenses, including medical bills, burial or cremation services, and caskets or urns

• Con: Cost — expensive premiums for lower coverage amounts 

• Best for: People who have trouble qualifying for traditional coverage, like seniors and people with serious health conditions

→ Learn more about life insurance rates

Comparing the five main types of life insurance, at a glance

What are the basic features of a life insurance policy?

• Premium: It’s the money you pay to keep your policy active. Most often, premiums are paid either monthly or annually.

• Policy length: It’s how long the policy will be active. With term policies, this is typically 10-30 years. Permanent policies last your entire life.

• Death benefit: It’s the amount of money the beneficiaries get if/when the insured dies. Death benefits are most commonly paid as tax-free lump sums.

• Beneficiary: The beneficiary or beneficiaries are the people who receive the death benefit when the insured passes away.

• Cash value: It’s a feature that comes with many permanent life insurance policies — it provides a separate account within your policy that earns interest at a fixed rate.

• Riders: They’re optional add-ons you can use to customize your policy. Some policies come with riders automatically included, while others can be added at an extra cost.

→ Learn more about how life insurance works

What type of life insurance is best for you?

Term life insurance policies are usually the best solution for people who need affordable life insurance for a specific period in their life. If your goal is to provide a safety net for your family if they had to live without your income or contributions to the family, term life is likely a good fit for you.

Permanent life insurance policies, including whole, universal and variable life insurance, are best for people who can pay more, have permanent coverage needs, or want to use life insurance to diversify their investment strategy. 

If you’re already maximizing contributions to traditional tax-advantaged accounts like a 401(k) and Roth IRA and want another investment vehicle, permanent life insurance could work for you.

Final expense insurance can be an option for people who might not be able to get insured otherwise because of age or serious health conditions, or elderly consumers who don’t want to burden their families with burial costs.

"The right type of life insurance for each person is completely dependent on their individual situation," says Patrick Hanzel, a certified financial planner and advanced planning manager at Policygenius. "It’s always recommended you speak with a licensed agent to determine the best solution for you."

Policy features	Term life insurance	Whole life insurance	Universal life insurance	Variable life insurance	Final expense insurance
Provides lifelong coverage	No	Yes	Yes	Yes	Yes
Limited length of coverage	Yes (up to 40 years)	No	No	No	No
Cheapest coverage	Yes	No	No	No	No
Guaranteed death benefit	Yes	Yes	Yes	Yes	Yes
Cash value	No	Yes	Yes	Yes	Yes
Can take loan against cash value	No	Yes	Yes	Yes	Yes
Minimal death benefit	No	No	No	No	Yes
Easy to understand	Yes	No	No	No	Yes
Flexible premiums	No	No	Yes	No	No
Can increase death benefit	No	No	Yes	Yes	No
Hands-on investment tool	No	No	No	Yes	No
Customizable	Yes, with riders	Yes	Yes	Yes	No

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Ten other common types of life insurance

Now that you’re familiar with the basics, below are additional life insurance policy types. Many of these life insurance options are subtypes of those featured above, meant to serve a specific purpose.

No-medical-exam life insurance

No-medical-exam life insurance doesn’t require a medical exam to be approved. Instead, no-med policies use past health records and other information about you to determine your premiums.

No-medical-exam life insurance often refers to term life policies that don’t require the exam, but other types of insurance, like simplified issue, don’t require the exam, either.

These types of policies also come with shorter waiting periods, which is the gap between the moment you start the application process and the moment your policy becomes effective.

If you have zero to one mild health condition and no family history of high-risk conditions like heart disease, especially if you’re young, you’ll most likely be eligible for a no-med policy.

• Pro: Time-saving — no-medical-exam life insurance provides faster access to life insurance without having to take the medical exam.

• Con: People who are of old age or have multiple health conditions might not be eligible.

• Best for: Anyone who has few health complications

Supplemental life insurance 

Supplemental life insurance, also known as voluntary or voluntary supplemental life insurance, can be used to bridge the coverage gap left by an employer-paid group policy. In other words, it can be purchased to complement a group life insurance policy that doesn’t provide a large enough death benefit. 

You’ll generally encounter supplemental life insurance as an optional employee benefit offered in addition to your basic group life insurance, but not all employers offer this benefit. Supplemental policies are typically bought through your employer but can be purchased privately.

• Pro: Convenience — guaranteed access to additional coverage when offered as a benefit by an employer

• Con: Limited coverage — you’ll usually need an additional term policy to get all the coverage you need

• Best for: Anyone looking for easy access to coverage through their employer

Simplified issue whole life insurance 

Simplified whole life insurance, a type of simplified issue life insurance, offers a small amount of permanent life insurance coverage to those who don’t qualify for other policies, and it doesn't require a medical exam.

Instead, you answer a few questions about your health. (There are some companies that offer simplified issue term life insurance as well, but it’s less common.)

The shorter application process gets you coverage faster, but because the health evaluation isn’t as thorough, insurers set a higher premium for a lower coverage amount. However, simplified issue policies can help seniors or people with certain pre-existing conditions get coverage to pay for final expenses.

• Pro: Convenience — simplified issue policies provide small coverage amounts for final expenses without having to take the medical exam.

• Con: Cost — higher premiums for a low coverage amount. People over a certain age or with severe underlying medical conditions may not qualify.

• Best for: Seniors without major medical issues 

Guaranteed issue life insurance

Guaranteed issue life insurance belongs to a category of policies called burial insurance, or final expense life insurance. It’s permanent coverage that’s best for people between age 45 and 80 and those who can’t qualify for a standard life insurance policy due to a serious medical condition or terminal illness. Application acceptance is near-guaranteed.

Unlike term or whole life insurance, the application for guaranteed issue life insurance doesn’t involve health questions or a medical exam. It has a small death benefit, which is meant to help your family cover your funeral costs or medical bills.

• Pro: Near-certain approval — guaranteed issue provides access to a small death benefit to cover final expenses.

• Con: Cost — high premiums for relatively low coverage amounts

• Best for: Seniors or people with terminal illnesses 

Mortgage protection insurance

Mortgage protection insurance, also known as MPI, is designed to pay off your remaining mortgage when you die. Unlike other policy types, MPI only pays the death benefit to your mortgage lender, making it a much more limited option than a traditional life insurance policy.

With an MPI policy, the beneficiary is the mortgage company or lender, instead of your family, and the death benefit decreases over time as you make mortgage payments, similar to a decreasing term life insurance policy. In most cases, purchasing a standard term policy instead is a better choice.

• Pro: Access — an MPI policy can be a coverage option for people who can’t qualify for standard term life insurance due to age or health issues

• Con: Limited coverage — it only protects mortgage payments

• Best for: Anyone with mortgage obligations who’s not eligible for traditional life insurance

Credit life insurance 

Credit life insurance is a type of life insurance policy that pays out to a lender if you die before a loan is repaid instead of paying out to your beneficiaries. The policy is tied to a single debt, such as a mortgage or business loan. Your lender is the sole beneficiary of the policy and the death benefit only covers the loan in question.

You’re guaranteed approval and, as you pay down your loan, the death benefit of your policy decreases. If you die while the policy is in force, your insurance provider pays the death benefit to your lender. Mortgage protection insurance (MPI) is one of the most common types of credit life insurance.

• Pro: Convenience — credit life insurance can be an option to cover a loan if you’re not eligible for standard life insurance.

• Con: Coverage limitations — your lender is the beneficiary and the death benefit only covers a specific debt.

• Best for: Anyone with debt obligations who’s not eligible for traditional life insurance 

Accidental death and dismemberment insurance

Accidental death and dismemberment insurance (AD&D) covers you if you die in an accident, or if an accident causes you to lose a hand, foot, or limb. It’s usually offered by employers as an alternative to life insurance, but it’s generally inexpensive if you buy a private policy.

Because AD&D only pays out under specific circumstances, it’s not a suitable substitute for life insurance. AD&D insurance only pays out if you’re injured or killed in an accident, whereas life insurance pays out for most causes of death. 

Because of this, AD&D isn’t suitable for everyone, but it may be beneficial if you have a high-risk occupation.

• Pro: Cost — whether it’s offered as a benefit through your employer or you buy it on your own, policies are generally inexpensive.

• Con: Limited coverage — AD&D covers you only under specific circumstances, whereas a traditional life insurance policy offers more comprehensive coverage.

• Best for: Anyone on a tight budget with dependents who would financially suffer in the event of your impairment or death  

Joint life insurance

Joint life insurance is a life insurance policy that covers two people. Most commonly, the joint policyholders are married or domestic partners, but they can also be business partners.

Most joint life insurance policies are permanent life insurance policies, which last your entire life and have an investment-like cash value feature that earns interest. Joint term life insurance policies, which expire after a set period, do exist but are less common.

• Pro: Convenience — joint policies can cover two people if one of them doesn’t qualify for coverage, or if buying two separate policies is out of budget.

• Con: Cost & access to death benefit — joint policies are usually more expensive than two separate individual policies, and depending on the type of joint policy, it might take longer for the beneficiaries to receive the death benefit.  

• Best for: Couples who don’t qualify for two individual life insurance policies

There are two main types of joint life insurance policies: 

• First-to-die: The policy pays out after the first of the two spouses dies. First-to-die is the most similar to an individual life insurance policy. It helps the surviving policyholder cover expenses after the loss of financial support.

• Second-to-die: The policy pays out the death benefit once both policyholders die. Second-to-die life insurance, typically called a survivorship policy, works best as a windfall to a dependent. It doesn’t provide any income replacement for your partner.

Short term life insurance

A short term life insurance policy provides some coverage while you’re waiting to get a longer-term policy. Policies last a year or less and protect you if you can’t get affordable premiums due to a current health condition or you're waiting for your insurer to come to a decision on your application. 

Short term policies have their own set of limitations, like increasing premiums and coverage maximums, but can provide some temporary protection. The two most common policy types include annual renewable life insurance and temporary life insurance.

• Pro: Convenience — short term life insurance can provide temporary coverage.

• Con: Duration & cost — can last only a few months and/or have increasing premiums

• Best for: People waiting approval for a longer-term policy

Group life insurance

Group life insurance, also called group term life insurance, is one life insurance contract that covers a group of people. It’s usually offered by employers, but may also be offered by unions and trade organizations.

Group term life insurance is often subsidized by the policyholder (e.g., your employer), so you pay little or none of the policy’s premiums. You get coverage up to a limit, usually $50,000 or one to two times your annual salary. 

Group life insurance is affordable and easy to qualify for, but it rarely provides the level of coverage you might need — and you’ll probably lose coverage if you leave your job. To fully protect your loved ones, you should buy a term life insurance policy to complement your group plan.

• Pro: Convenience — group policies provide guaranteed coverage at little or no cost to employees

• Con: Limited coverage — and you usually lose coverage if you leave your employer

• Best for: Anyone who’s offered group life insurance by their employer 

How to take the next step

Once you have an understanding of the types of life insurance, you can connect with a Policygenius expert to go over next steps as they pertain to your specific needs. 

First, you’ll provide some basic information about your financial goals and responsibilities, as well as your age and health. Then, they’ll be able to help you compare life insurance providers quickly and easily, and find the best life insurance company for your circumstances.

Main life insurance types, at a glance

Frequently asked questions

What are the two main types of life insurance?

Term and permanent are the two main types of life insurance. The main difference between both is that term life insurance policies have an expiration date, providing coverage between 10 and 40 years, and permanent policies never expire. Permanent life insurance comes with a cash value component — in addition to the death benefit — that can be used to save, invest or build wealth. Both its duration and cash value make permanent life insurance many times more expensive than term.

What is the cheapest type of life insurance?

Term life insurance is generally the most affordable and comprehensive type of life insurance because it’s simple and provides financial protection during your income-earning years. How much you pay for life insurance, however, will depend on your age, gender, lifestyle, and health.

What is the easiest type of life insurance to get?

Term life insurance is usually the easiest type of life insurance to be approved for — especially if you’re young and have no major health conditions — but your eligibility will depend on several factors, including your age, gender, lifestyle, and health.

What kind of life insurance do I need?

The right life insurance policy for you depends on your financial situation and your dependents. Term life insurance is the best choice for most people because it’s more affordable, but whole life insurance makes sense for people who need lifelong coverage or those looking for insurance with a cash value.

What types of life insurance are there?

There are many types of life insurance, but they usually fall into two main categories: term (which lasts for a set term) and permanent (which never expires). Whole, universal, indexed universal, variable, and burial insurance are all types of permanent life insurance. Permanent life insurance typically comes with a cash value and has higher premiums.

What is the most common type of life insurance?

Term life and whole life are the most popular types of life insurance. Whole life insurance premiums represented 38% of the individual U.S. life insurance market in 2022, according to LIMRA, the life insurance research organization. Meanwhile, term life premiums represented 19% of the market share in the same period (bearing in mind that term life premiums are much cheaper than whole life premiums).