Understanding The Different Types of Life Insurance Policies (2024)

FAQs

What are the 3 major types of life insurance? ›

Term life insurance. Whole life insurance (permanent) Universal life insurance (permanent)

Whole life insurance has several variations, including limited payment, modified, single-premium, and variable whole life.

If you have many dependents, whole life insurance may be a better route. However, if financial planning and cash value are most important to you, universal life insurance may be a strong option. Lastly, if you are a business owner, group life insurance might be the best life insurance option.

If you want your life insurance to be able to pay out the death benefit no matter when you die, you'll want a permanent policy.

If you only need coverage for a few years while your children are growing up, for example, then term life insurance may be the right choice. But if you want lifetime coverage and the ability to build cash value, then consider whole life insurance.

A term life policy may be the most simple, straightforward option for life insurance for many people. A death benefit can replace the income you would have earned during a set period, such as until a minor aged dependent grows up.

Permanent life insurance refers to coverage that never expires (unlike term life insurance). Most permanent life insurance combines a death benefit with a savings component. Whole life and universal life insurance are two primary types of permanent life insurance.

A whole life insurance policy has fixed premiums, meaning your payments to maintain your policy will never go up. As long as you continue to make premium payments, you're covered for life.

Permanent life insurance plans usually have the basic components of other types of life insurance policies, like the death benefit and some type of savings element. The name refers to the fact that these policies are meant to last indefinitely, or until the policyholder passes.

Pacific Life is the best life insurance company of 2024, based on our analysis. The best life insurance companies offer a range of policies, including term and permanent coverage. Several companies in our rating offer life insurance policies without a medical exam.

What is a good life insurance policy amount? ›

A common rule of thumb is at least 6% of your gross income plus 1% for each dependent. A stay-at-home parent should get enough life insurance to cover the costs incurred by the family if anything should happen to them.

Generally, when term life insurance expires, the policy simply expires, and no action needs to be taken by the policyholder. A notice is sent by the insurance carrier that the policy is no longer in effect, the policyholder stops paying the premiums, and there is no longer any potential death benefit.

If you're still living when the policy term ends, the insurance company pays back all or some of the money you spent on payments, depending on your policy, in the form of an ROP benefit.

Some of the top reasons for a claim to be denied include fraud, high-risk activities, suicide clauses, policy expiration and the possibility of beneficiaries' involvement in the insured's death.

A paid-up life insurance is a life insurance policy that is paid in full, remains in force, and you don't have to pay any more premiums. It stays in-force until the insured's death or if you terminate the policy.

The two main types of life insurance are term and permanent. Term life insurance policies usually last between 10 and 30 years and then expire. Permanent life policies never expire and come with a cash value savings component in addition to the standard death benefit.

A return of premium (ROP) life insurance rider is an optional add-on to a term life policy that, if you outlive the policy term, pays you all or some of the money you spent on policy payments.

Most experts agree that life, health, long-term disability, and auto insurance are the four types of insurance you must have.

Term life insurance tends to be much more affordable than permanent life insurance, including whole life and universal life insurance policies. With term life insurance, you're covered for a set number of years.