Types of Life Insurance Policies Explained

Choosing a life insurance policy can feel overwhelming – but it doesn’t have to be complicated. At its core, life insurance is about protecting the people you love. Understanding the different types of life insurance policies can help you find a policy that fits your specific situation.

Whether you're just starting your search or comparing a few options, this guide will walk you through the main types of life insurance policies.

Types of Life Insurance: Term vs. Permanent

While there are many different overall types of life insurance, we can start with dividing them into two main categories: term or permanent.

• Term life insurance provides coverage for a set period (such as 10, 20, or 30 years). If you pass away during that time, your beneficiaries receive a death benefit. If not, the policy ends. It’s typically the most affordable option. (Note: Some companies offer ‘return of premium’ term policies, which can refund premiums paid if you outlive the term period. However, those premiums are usually higher than standard term.)
• Permanent life insurance lasts your entire life (as long as you pay your premiums) and includes a cash value component that can grow over time. There are several types of permanent life insurance, including whole, universal, and guaranteed issue.

Understanding this basic difference is the first step to choosing the right policy. Now that you know the two main categories let’s take a closer look at the specific policy types that fall under each category. From straightforward options like term life to more complex policies like universal life, each type offers different benefits and tradeoffs.

What Are the Different Types of Life Insurance?

Life insurance policies vary, with each type designed to meet different needs, budgets, and life stages. Below, we break down different life insurance policies.

Term Life Insurance

Term life insurance provides coverage for a set period, usually ranging between 10–30 years. It’s called "term" insurance because it provides coverage only for a set term. As long as you keep paying your premiums—or as long as your policy is current—you remain covered. If you pass away during the term, your beneficiaries receive a payout (called the death benefit). If the term ends and you're still living, coverage expires with no payout. Term insurance is straightforward and easy to understand, and it’s a popular choice for many people.

Key features:

• Affordable monthly premiums
• Fixed coverage length
• No cash value component
• Ideal for income replacement, mortgage protection, or coverage for young families

Now we’ll discuss various kinds of permanent insurance.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that lasts your entire life, provided you pay your premiums. It includes a guaranteed death benefit and a cash value component that can grow over time.

Key features:

• Lifetime coverage
• Premiums stay the same for life
• Builds cash value
• Typically costs more than term life, but includes savings component

Note: Guarantees are based on the claims paying ability of the issuer

Universal Life Insurance

Universal life (UL) insurance also provides lifelong coverage but offers more flexibility than whole life. You can often adjust your premium payments and death benefit over time. UL insurance also includes a cash value component, which may grow based on interest rates or market performance, depending on the UL subtype.

Subtypes of UL insurance:

• Fixed UL: Earns a set interest rate that can help grow your cash value
• Indexed UL: Cash value growth is tied, in part, to a market index, but premiums are not directly invested in the market.
• Variable UL: Cash value growth is directly tied to mutual fund-like sub-accounts and can rise or fall with market performance.

Key features:

• Flexible premiums and coverage
• Cash value potential
• Risk and reward vary by subtype
• Can be complex and sometimes more expensive, depending on policy features
• May require more ‘hands on’ management

Final expense insurance (burial insurance)

Final expense insurance, also called burial insurance, is a small whole life policy designed to cover end-of-life expenses, like funeral costs or medical bills.

Key features:

• Smaller death benefit (often $5,000–$25,000)
• Lifetime coverage
• No medical exam required
• Typically geared toward seniors

Guaranteed Issue Life Insurance

Guaranteed issue policies offer life insurance with no health questions or exams. Approval is guaranteed for most applicants within a certain age range, making this a good option for people with serious medical conditions.

Key features:

• No medical underwriting
• Small coverage amounts
• Higher premiums
• Often includes a waiting period before full benefits are available

Simplified Issue Life Insurance

Simplified issue life insurance falls between guaranteed issue and traditional whole life or term policies. Like guaranteed issue, it’s designed to streamline the application process. Coverage amounts are usually small to moderate. This kind of policy can be a good choice for people with mild or well-managed health conditions that may not qualify for traditional policies, but who still want coverage.

Key features:

• No medical exam required
• Short health questionnaire
• More affordable than guaranteed issue
• Can be a good choice for people with pre-existing health conditions

Group Life Insurance

Group life insurance is typically offered through an employer. It provides basic coverage, often at no cost to the employee. Typically the amount is the same as your annual salary, yet many companies offer the option to increase coverage for an additional employee-paid amount. This kind of coverage usually ends when you leave the job.

Key features:

• Easy enrollment through work
• Limited coverage (e.g., 1–2x your salary)
• May not be portable if you change jobs
• Good supplement, but often not enough on its own

Pros and Cons of Each Life Insurance Type

Choosing the right policy means weighing the benefits against potential drawbacks. Here’s a side-by-side look at the most common types of life insurance and how they compare:

As you can see, there’s no one-size-fits-all solution. The choice that may be best for you can depend on factors like your age, budget, health, and what you want the policy to accomplish. Whether you’re looking for affordability, lifelong coverage, or ease of approval, understanding the pros and cons of different life insurance policies can help you make a confident decision.

Common Myths About Life Insurance Types

There’s a lot of misinformation out there about how life insurance works. Let’s clear up a few common myths so you can feel more informed when exploring your options.

Myth #1:Term life insurance is always the best choice.

Term life is affordable and popular, but it’s not right for everyone. If you want lifelong coverage or a policy that builds cash value, a permanent option like whole or universal life might be a better fit.

Myth #2: Whole life insurance is only for the wealthy.

While whole life can be more expensive than term, it offers benefits like stable premiums and cash value growth that appeal to many families, not just high-net-worth individuals.

Myth #3: You can’t get life insurance with a health condition.

Simplified and guaranteed issue policies make it possible to get coverage without a medical exam, even if you have a pre-existing condition.

Myth #4: Group life insurance through work is enough.

Employer-provided life insurance is a great benefit, but it often doesn’t offer enough coverage and usually ends when you leave your job. That’s why many people supplement it with an individual policy.

Myth #5: All permanent life insurance policies work the same way.

Permanent policies vary widely. For example, whole life offers fixed premiums and guaranteed cash value, while universal life provides more flexibility and can depend on interest rates or market performance.

How to Choose the Best Type of Life Insurance for You

With so many types of life insurance available, it’s important to understand which type of life insurance might work best for your situation. Here are a few things to consider:

1. What do you want the policy to cover?

Are you replacing income, covering a mortgage, paying for final expenses, or leaving behind a legacy? Your answer can help determine whether term or permanent insurance is the better fit.

2. What’s your budget?

Term life typically offers the most coverage for the lowest price. If you’re looking for affordability, it can be a good place to start. Permanent policies usually cost more but come with added benefits like lifetime coverage and cash value.

3. How’s your health?

Your current health can affect your eligibility and premium payment. If you have a medical condition, simplified issue or guaranteed issue policies may be worth exploring.

4. Do you prefer flexibility or guarantees?

Some policies (like universal life) offer flexibility in how and when you pay premiums. Others (like whole life) provide stability with fixed payments and predictable cash value growth.

Not sure how much coverage you need?

Check out the Life Insurance Needs Calculator from Life Happens. It’s a free tool that helps you estimate how much protection you may need.

What Type of Life Insurance Does Ethos Offer?

At Ethos, we focus on making life insurance simple, accessible, and fast, without sacrificing quality. That’s why we offer policies that cover a wide range of needs and health situations, all through a streamlined online experience.

Term Life Insurance

Ethos offers term life insurance with flexible coverage lengths and benefit amounts. Most applicants can get covered online in minutes with no medical exam, just a few health questions required.

Whole Life Insurance

For people aged 66–85, Ethos offers a Guaranteed Issue Whole Life policy to help cover final expenses. This means no medical exams or health questions are required. Not all whole life insurance is a guaranteed issue and many policies do involve medical underwriting. This specific product offers guaranteed acceptance for those who qualify by age.

FAQs on Types of Life Insurance

Choosing a life insurance policy can bring up a lot of questions, especially when you're trying to figure out which type makes the most sense for your situation. Here are a few quick answers to help you feel more knowledgeable as you explore your options.

What are the main types of life insurance policies?

The two main categories are term life insurance and permanent life insurance, but there are several different types of life insurance policies within those categories.

Which type of life insurance is best for seniors?

It depends on a few factors, like individual goals and health. Seniors often choose guaranteed issue or final expense policies because they’re easier to qualify for and help cover end-of-life costs. If you're in good health and want more coverage, a term policy may still be an option.

Can I switch from one type of life insurance to another?

You can’t typically change an existing policy’s type, but you may be able to purchase a new policy that better fits your needs, especially if your health or financial situation has changed. Always check the terms of your current policy before making any changes.

Does Ethos offer all types of life insurance?

Ethos offers term life and whole life insurance through a simple online application. While we don’t offer every type of policy, we focus on the options that provide the most value, simplicity, and speed for most people.

Why Choose Ethos for Life Insurance?

At Ethos, we believe life insurance should be simple, affordable, and accessible. Our online process makes it easy to get covered in minutes, with no medical exam - just a few health questions.

We partner with top-rated insurers to offer flexible coverage so you can protect who matters most, with less hassle and more peace of mind.

Ready to explore your options? Get your personalized quote today.

The information and content provided is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsement. You should consult with an attorney or other professional to determine what may be best for your individual needs. Guarantees are based on the claims paying ability of the issuer.