GiveLife life insurance solutions guide to help best serve you 

The different types of life insurance policies and their key features

1. Term life insurance

A term life policy is exactly what the name implies: Coverage for a specific term or length of time, typically between 10 and 30 years. It is sometimes called “pure life insurance” because, unlike whole life insurance, the policy has no cash value. It’s designed solely to give your beneficiaries a payout if you die during the term.

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Most individual term policies have level premiums, so you pay the same amount every month. When the term expires, there’s no more coverage — you either have to go without or get a new policy, which will likely come at a higher cost: the older you are, the more expensive it is to get a policy. However, many providers will allow you to convert a term policy to permanent life insurance for part or all of the coverage period. If you receive insurance through an employer, rates are typically issued “on attained age,” which means the rates will increase over time.

A calculator can help you determine the cost of term life insurance at your desired coverage level. How many years will your family need financial protection? For most people, until the kids are grown up, the house is paid off, and there's some money that can serve as protection for the surviving spouse.
 

Who should consider term life insurance?

Term life insurance generally has lower premiums, helping you save on your monthly expenses. On the other hand, it only provides a benefit for a limited period of time — and there is no cash value component that grows over time. That said, it may be a good fit for:

• Young families: Families that want financial protection until their young children come of age may choose a 10- or 20-year policy.

• Families with mortgages: Families that want financial protection until their mortgage is paid off can also benefit from term life.

• Those anticipating a need for temporary financial protection: Any household that seeks temporary protection can benefit. For example, a couple approaching retirement may choose term life just in case one spouse passes away before social security and other retirement benefits kick in.
   

2. Whole life insurance

A whole life policy is the simplest form of a permanent life insurance policy, providing coverage that lasts your entire life. Like other permanent policies, it includes a cash value component: A portion of your premium dollars are placed into a cash value account, and this sum grows over time on a tax-deferred basis, so you don’t pay taxes on the gains.
 

Compared to other forms of permanent life insurance coverage, a whole life policy has three defining characteristics:
 

• The level premium payments remains the same for life

• The death benefit is guaranteed as long as the guaranteed premiums are paid.

• The policy includes guaranteed cash values that grow at a guaranteed rate
   

Cash value provides several significant benefits you can use while you’re still alive. It takes a few years to grow into a useful amount, but once that happens, you can borrow money against it, use it to help pay your premiums, or even surrender it for cash to live on in retirement. Plus, when you get this type of policy from a mutual company, your cash value can earn annual dividends. You get a portion of the insurer’s profits, which can be used to increase the value of your policy and provide other benefits.
 

Who should consider whole life insurance?

This type of policy may be a good choice if you’re concerned with:

• Building wealth: Allows you to accumulate cash value on a tax-deferred basis. Many people consider it to be a good savings vehicle.

• Estate planning: Can be a powerful estate planning tool.

• Wealth transfer: Can be used to pass wealth on to beneficiaries in a tax-efficient manner.

• Final expenses: Can be used to cover end-of-life expenses, such as medical care, outstanding debts and funeral expenses.
   

3. Universal life insurance

A universal life policy offers the same cash value and lifetime coverage benefits as whole life. But there’s a fundamental difference: the premium payments are flexible.

With this type of policy, you can raise or lower the amount you pay within the limits of the policy.

Who should consider universal life insurance?

This type of policy may be a good fit for:

• Households with variable income: Premium payments can be changed periodically to adapt to changing income levels.

• Those seeking faster cash value accumulation: If you choose to pay higher premiums, your policy will accumulate cash value faster.

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4. Final expense insurance

Final expense insurance is a form of life insurance intended only to cover end-of-life expenses such as funeral and burial costs. Older people often buy final expense insurance because it helps to protect loved ones who might otherwise have to cover these costs out-of-pocket. While the premiums for these policies tend to be modest, there is no cash value component, and the death benefit is very limited.

5. Simplified issue and guaranteed issue insurance

Most life insurance policies require a medical exam as part of the application process so that the provider can assess your risk to insure. Simplified issue and guaranteed issue policies don’t require a medical exam. These policies are primarily designed for older applicants or those with serious health problems who may not qualify for policies that require a medical exam.

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Some term policies and most final expense policies are either simplified issue or guaranteed issue. When applying for a simplified issue policy, you'll be asked to fill out a health questionnaire in place of an exam. With a guaranteed issue policy, you won't be asked to undergo an exam or complete a questionnaire — no medical information is needed to qualify for approval. These policies typically offer lower coverage levels than other types, and premiums tend to be higher because the insurance company has to assume that there’s a high risk to providing coverage.