Are you confused by all the different types of life insurance? If so, you’re not alone. We’ll go over the major differences, and help you figure out which is right for you.
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Our Most Popular Type of Coverage: Term Life
Of all the different types of life insurance, term life is by far the most popular and the most affordable. According to the American Council of Life Insurance, 48% of American households have a term life policy. That’s more than twice as many who have a cash value policy (20%).*
Here’s what makes term life so popular:
- Simple to understand. Unlike other policy types, term life is straightforward: if you pass away during your term, your beneficiary(ies) can file a claim to collect the tax-free death benefit. If you survive your term, the policy ends and there is no more coverage in place.
- Wide range of terms. Most people buy term life to cover a particular financial obligation, whether it’s a mortgage or raising a family. No matter how long that obligation lasts, there’s a term that works, from a simple one-year policy all the way up to 40 years.
- Choose from fully underwritten & no-exam policies. To get the lowest rates, opt for a fully underwritten policy that requires you to take a free medical exam. The exam consists of having your height and weight measured, along with providing blood and urine samples. The insurance company needs this information to offer the lowest possible price based on your health, age, and gender. But if you’d rather not take the exam, you don’t have to. No-exam term life policies use alternate sources of information, including information about you from public records including your driving record, credit record, criminal record, and any bankruptcies on file. No-exam policies usually cost a little more, but if you’re short on time or have a fear of needles, this is a great option for you.
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Trouble Qualifying? Try This Type of Coverage
If you’ve been turned down for coverage before, it doesn’t mean you can’t get a policy. Of all the different types of life insurance, guaranteed issue is the easiest to qualify for. It’s designed to help people who have severe health issues and can’t get coverage any other way.
With guaranteed issue, there is no medical exam required. To qualify, you just need to fill out a brief questionnaire that asks a few simple health questions. Most insurers will only turn down applicants who have advanced dementia, already have a terminal illness diagnosis, or who live in a nursing home. Keep in mind that this coverage is pricier than term life, and death benefit amounts are usually limited to below $50,000. You may also see these policies referred to as “final expense” coverage, since the intent is to leave behind enough to pay your final medical expenses, as well as funeral and burial costs.
➡️ Been turned down for coverage already? Let’s see if we can help! Call us at (800) 823-4852 and let one of our friendly agents give you a second opinion. Or click the button below to request a free quote.Request a Free Quote
Lifelong Coverage: Cash Value Life Insurance
Cash value life insurance covers you for the rest of your life – that’s the first big difference between it and term life. The second big difference is the cash value it builds, a savings component that gives you a real financial asset for your portfolio. Because of these features, cash value policies cost 5-10 times more than term policies.
Here are the main benefits you get from choosing this type of coverage:
- Earn cash value. Your cash value account is attached to your policy. It gets funded over time with portions of your payments and interest credited by your insurer.
- Policy type determines how you earn interest. With cash value, different types of life insurance have different interest crediting options. Whole life is the safest, with a locked-in rate set at the time you buy your policy. Universal policies offer a variable rate that your insurer will change over time to reflect prevailing interest rates. Indexed universal life (IUL) lets you tie your interest to the performance of a market index, like the S&P 500. If the index does well during a particular crediting period, you’ll get a higher rate of interest. If the index loses value, you’ll earn less interest or possibly zero interest, depending on your insurer’s specifications. Variable universal life takes this a step further and lets you invest your cash value in certain market options like ETFs. There’s the potential for loss here since you are actually invested in the market, unlike with IUL. But there’s also the potential for faster, higher gains than with the other policy types.
- Access cash value. Once it’s had time to grow, you can access your cash value via policy loans or partial withdrawals. With a loan, you’re borrowing against the cash value, but it remains in your account and continues to earn interest. If you don’t pay it back, the insurer will subtract what you owe from the death benefit before it goes to your beneficiary(ies). Or you can pull cash value through a partial withdrawal, which unlike a loan, doesn’t have to be paid back.
- Use cash value to pay your premiums. This is a convenient feature you can take advantage of once you have enough accumulation. You can use that money to pay for your policy, which can ease the financial burden later in life if you’re on a fixed income. It’s up to you, however, to make sure your account always contains the minimum required by your insurer to keep from lapsing.
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Which of the Different Types of Life Insurance Is Right for You?
If you’re not sure which type to choose, here are a few questions to ask yourself:
- Have I already been turned down for health reasons? Unless your health issues have gone away, guaranteed issue is going to be your best bet.
- What is my budget? If your budget is under $100/month, term life is probably going to work best for you. We can give you quotes for both over the phone just to be sure, or you can check out our post on sample term life rates here and sample cash value (permanent) rates here.
- What are my goals for this coverage? Are you more interested in providing for your loved ones or growing a financial asset you can use later? If providing for your loved ones is your top priority, term, whole, or universal life will probably work best. If you’re interested in growing a financial asset and are willing to do the work, variable universal life offers you the best potential for growing cash value with smart investing decisions.
- Am I willing to take the free medical exam? If you’re not, your policy options may be more limited. You can get term, whole, and universal life without taking the exam, but you won’t have as many insurers to choose from.
It’s a lot to think about, we know! That’s why it can be easier to talk things through with someone – like one of our friendly, licensed agents. They’ve helped thousands of clients get covered, and know the ins and outs of the different types of life insurance. If you have health issues, they can also help steer you towards the insurers most likely to offer you a fair price. It really does pay to work with an agent when it comes to life insurance!
➡️ Let’s get your coverage in place today! Call us at (800) 823-4852 and let one of our friendly agents answer all your questions. For a free term life quote, just click the button below!Get a Free Quote
*"Life Insurance Statistics, Data and Industry Trends 2023," Forbes.com, accessed 11/3/23