Home / Life insurance
Life insurance
Every kind of life insurance, explained plainly
There are only a handful of real choices, and the differences between them are simpler than the industry makes them sound. Here is all of it.
The one distinction that matters
Every life policy is either temporary or permanent. Everything else is a variation on that.
Term life insurance
Temporary — 10, 15, 20 or 30 years
Level term
You choose an amount and a length. The premium stays level for that period. If you die inside it, your family receives the full amount. If you outlive it, coverage ends and you get nothing back.
It is by far the cheapest way to buy a large amount of coverage, which is why it suits people with a mortgage, young children or an income their family relies on.
Where it's strong
- Most coverage per dollar, by a wide margin
- Simple — no cash value, no moving parts
- Often convertible to permanent coverage later without new health questions
- Right answer for a temporary obligation like a mortgage
What to watch
- Ends at the term's finish, usually when you're least insurable
- Renewal after the term is possible but expensive
- Builds no cash value — nothing to borrow against
- Ask whether it's convertible before you buy, not after
Permanent life insurance
Permanent — for life
Whole life
Fixed premium, fixed death benefit, coverage that never expires as long as you keep paying. It builds cash value slowly, which you can borrow against, and with a participating carrier it may pay dividends.
This is the product behind almost every final expense policy, at a smaller face amount.
Where it's strong
- Premium never rises, coverage never expires
- Predictable — no market exposure
- Builds cash value you can borrow against
- No medical exam on most smaller policies
What to watch
- Much more expensive per dollar of coverage than term
- Cash value grows slowly, especially early on
- Borrowing against it reduces what your family receives
- Dividends, where paid, are not guaranteed
Permanent — flexible
Indexed universal life (IUL)
Permanent coverage where the cash value grows based on a market index rather than a fixed rate. A floor protects you from index losses; a cap limits your gains. Premiums are flexible within limits.
It is the most complex product on this page and the one most often sold badly. It suits people who have already maxed out other tax-advantaged savings and want permanent coverage with growth potential.
Where it's strong
- Growth linked to an index, with a floor against index losses
- Flexible premiums and adjustable death benefit
- Tax-deferred cash value growth
- Can be structured for supplemental retirement income
What to watch
- Caps, participation rates and spreads limit your upside
- Illustrations show projections, not promises — ask for a lower-rate version
- Cost of insurance rises with age and can erode cash value
- Underfund it and the policy can lapse. Read the guarantees, not the projections.
Life insurance for a specific job
Permanent — $5,000 to $25,000
Final expense
Small whole life policies built to cover a funeral, leftover medical bills and small debts. No medical exam on most plans, and health conditions are usually still workable.
We cover this in depth in what a funeral actually costs and how final expense actually works.
Where it's strong
- Approval with health conditions that block other policies
- No medical exam, just health questions by phone
- Rate locked for life, coverage never expires
- Money goes to your beneficiary, not to a funeral home
What to watch
- Expensive per dollar — it isn't income replacement
- Graded and modified plans pay only part of the benefit in the first two years
- Buying too little is the common mistake
Term, matched to your loan
Mortgage protection
Term life sized and timed to your mortgage, so if you die the loan can be cleared and your family keeps the house. Often sold with optional disability or critical illness riders.
Where it's strong
- Directly solves the biggest fear most homeowners have
- Riders can cover disability or a serious illness too
- Straightforward to size — you already know the number
What to watch
- It is ordinary term life with a name attached; compare it as such
- A decreasing benefit version pays less over time — ask which you're being shown
- Paid to your beneficiary, not the lender, unless you arrange otherwise
Supplemental
Accidental death and dismemberment
Pays an additional benefit if death or serious injury results from an accident. Cheap, because accidents cause a small share of deaths.
Where it's strong
- Inexpensive
- Usually no health questions
- Pays on top of any other life insurance you hold
What to watch
- Pays nothing if you die of natural causes — which is most deaths
- Never a substitute for real life insurance
- Read the definition of 'accident' in the policy; exclusions matter
A word on replacing existing coverage.
If you already have a policy, do not cancel it until a new one is issued and in force. Cancelling first and being declined second is how people end up with nothing. Any agent who tells you otherwise is not looking after you.
Not sure which of these you need?
That's the normal starting point. Call and we'll work through it in about ten minutes — no obligation, and an honest answer if the right move is doing nothing at all.
888-343-4002Toll free — Monday to Friday, 9am – 6pm ET