Understanding the Types of life insurance policies and how to choose wisely.

Understanding the different types of life insurance policies is an intimidating task, that’s what you may think.

But, once you know that there are only two types of life insurance, it will make understanding each type much more clear.

This blog post helps you make sense of the two life insurance types and to help you choose which is best for you.

The two different types of life insurance

Life insurance can be broken down into two types of life insurance policies.

  • Temporary life insurance policy (Term Insurance)
  • Permanent life insurance policy (Whole or Universal)

There are pros and cons to each type of policy which we will explain more below. Knowing the difference between each type of policy can help make sure you choose the best plan for your individual situation.

Term Life (Temporary)Whole Life (Permanent)Universal Life (Permanent)
Builds cash valueNo Yes Yes
Cash withdrawals allowedNoYesYes
Policy loans allowedNoYesYes

Two types of permanent life insurance

There are two types of permanent life insurance policies.

  • Whole life insurance
  • Universal life insurance

A permanent insurance policy is designed to last an individual’s entire life without lapsing. Most permanent policies also build up a cash value savings component within the policy that can be accessed by the insured by withdrawal or loan.

The difference between permanent policies is not the insurance coverage, but the way each plan manages the cash value.

Types of whole life insurance

Whole life insurance best for someone looking for permanent coverage, wants to build cash value and lock in guaranteed level premiums for the duration of the policy.

The type of whole life insurance you should choose will depend on your goals and as well as your current health. There are several life insurance products with many different underwriting guidelines. So let’s take a look.

TraditionalGuaranteedFinal Expense
Death benefit allowedNo Limit$3,000-$50,000$3,000-$100,000
Exam NeededYesNoNo
Builds cash valueYes Yes Yes
Death BenefitDay oneGraded BenefitDay one
Policy loans allowedYesYesYes
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Traditional Whole Life