Types of Life Insurance Compared: Every Policy Side by Side

Every life insurance policy falls into one of two families: term life, which covers you for a set number of years at the lowest cost, and permanent life, which can cover you for life and builds cash value. Whole, universal, indexed universal, and variable universal life are all permanent. Final expense, simplified issue, and guaranteed issue policies are usually small whole life policies that are easier to qualify for.

This guide puts every major type in one table, explains what sets each apart, and ends with a "best for" matrix so you can see which types fit your goal.

What are the main types of life insurance?

The main types are term life and permanent (cash value) life, with several versions of each. The NAIC Life Insurance Buyer's Guide says there are "two basic types of life insurance: term insurance and cash value insurance," and that whole life, universal life, and variable life "are all types of cash value insurance."

A third way to sort policies is by how you qualify. Fully underwritten policies look closely at your health. Simplified issue policies ask a short list of health questions. Guaranteed issue policies ask none. That is a buying method, not a separate policy family, but it changes the price and the benefit so much that it belongs in any comparison.

How do all the policy types compare side by side?

The table below compares each type on the features that matter most. Treat age ranges as general patterns: limits vary by insurer, product, and state.

Sources for the table: the NAIC's life insurance overview, the Texas Department of Insurance life insurance guide (which notes most companies offer term only up to about age 70 or 80, and that universal life usually runs to age 95 or 100), and the Washington insurance commissioner. Final expense and guaranteed issue ages reflect published examples, such as a simplified issue final expense plan issued at ages 45 to 85 and a guaranteed issue whole life plan issued at ages 50 to 80. Buyer ages for IUL and VUL describe common patterns, not rules.

What are the three kinds of term life insurance?

The three common kinds are level term, decreasing term, and return-of-premium term. All three pay only if you die during the term.

• Level term keeps the same death benefit and premium for the whole term. The NAIC says typical terms are 10, 20, or 30 years.
• Decreasing term pays a death benefit that shrinks over time. The NAIC notes it is often used for debts that shrink, such as a mortgage. The Insurance Information Institute says the benefit usually drops in one-year steps.
• Return-of-premium (ROP) term refunds part or all of your premiums if you outlive the term. The NAIC says these policies "tend to cost more due to the potential for a refund."

Many term policies are also renewable or convertible. Convertible term lets you switch to permanent coverage without new health questions during a set window, which the Texas Department of Insurance says is usually allowed until about age 65. For a deeper look, see term vs. whole life insurance.

How is whole life different from universal life?

Whole life locks in the premium, death benefit, and cash value schedule; universal life lets you change premiums and coverage, but the policy only stays in force while there is enough value to pay its charges.

With whole life, the NAIC Buyer's Guide says you "generally pay the same amount in premiums for as long as you live." Premiums start out "several times higher" than term for the same amount, but are smaller than what you would eventually pay renewing term into old age. Some whole life policies are "participating" and may pay dividends, which the Texas Department of Insurance notes are not guaranteed.

With universal life, your premiums go into an account that earns interest, and charges come out of it. The Buyer's Guide warns that if your payments plus interest are less than the charges, the account shrinks, and "if it keeps dropping, eventually your coverage will end."

Guaranteed universal life (GUL) is a universal life policy built around a no-lapse guarantee. The Washington insurance commissioner explains that you keep your coverage as long as you pay the required minimum premium, but "you won't get much money" in cash value if you only pay the minimum. That trade makes GUL a way to buy lifelong coverage for less than whole life, as long as you pay on time. Our comparison of whole life vs. guaranteed universal life goes deeper.

What are indexed and variable universal life?

Both are universal life policies where cash value growth depends on markets. Indexed universal life credits interest based on an index; variable universal life invests your cash value directly, so it can lose money.

Indexed universal life (IUL) ties interest to an index such as the S&P 500. The NAIC says these policies offer a guaranteed minimum interest rate. Your upside is limited by caps and participation rates, and policy charges still come out every month. Our guide to what indexed universal life insurance is explains caps, floors, and illustrations.

Variable universal life (VUL) puts your cash value into subaccounts that work like mutual funds. The SEC's investor bulletin on variable life warns that "you could lose money, including your initial investment," that fees "may be significant," and that substantial fees and taxes make it generally unsuitable "as a short-term savings vehicle." Variable policies are sold with a prospectus, and the NAIC Buyer's Guide says to "study it carefully."

Where do final expense, simplified issue and guaranteed issue fit?

They are mostly small whole life policies sold with lighter underwriting. The difference is how many health questions you answer.

• Final expense policies are small whole life policies meant for funeral and final bills. Many are simplified issue: no exam, but a short set of health questions.
• Simplified issue skips the exam. The NAIC says it lets you forgo the medical exam "in exchange for generally higher premiums." You can still be declined.
• Guaranteed issue asks no health questions. You can't be turned down for health reasons within the age range, but many policies have a graded death benefit, often for the first two years.

We compare the last two head to head in guaranteed issue vs. simplified issue.

Which type of life insurance is best for which goal?

The best type is the one whose length and guarantees match your need. Use this matrix as a starting point, then compare actual quotes.

Not sure which row describes you? Our situation guide, which life insurance is best for you, walks through common life stages.

How do you narrow down your choice?

Start with your need, then match the policy type, then compare prices on the same type. The NAIC Buyer's Guide lays out the order:

1. Decide how much coverage you need, for how long, and what you can afford. Our life insurance calculator gives you a starting number.
2. Choose between protection for an early death, benefits for a long life, or a mix of both.
3. Compare similar policies from different companies. The guide notes that "no one company offers the lowest cost at all ages for all kinds and amounts of insurance."
4. Ask which parts of the premium and benefits are not guaranteed.
5. Don't drop a policy you already have until the new one is in force.

Browse the rest of our policy types guides for head-to-head comparisons.