Different types of life insurance coverage explained

Life insurance exists to help provide a safety net for your loved ones if you were to pass away. Buying life insurance is one of the most selfless financial gestures you can make. The proceeds of a policy offer valuable financial comfort that can be used to help your family pay bills, such as the mortgage, child care, and other day-to-day expenses.

Coverage is a simple concept: In exchange for the benefit of being insured, you pay premiums to your life insurance company, just like auto or health insurance.

Where life insurance can become complicated, however, is when it’s time to pick the right policy for your loved ones and your budget. Here, we’ll explain the different types of life insurance coverage that exist to help you determine what may be the best fit for your family.

What to consider when choosing between different types of coverage

Because so many types of life insurance are available, consider these four key questions as you evaluate your options:

1. What role do you want life insurance to play in your overall financial plans?

If you’re looking for affordable insurance coverage to help financially protect your family during the years they need it most, a term life policy is a sound choice. If instead, you’re looking for coverage throughout your life that builds cash value over time, permanent life insurance may be a better option.

2. How much can you afford?

Term life insurance allows buyers to get higher amounts of coverage for a significantly lower cost compared to a permanent life insurance policy, which can cost anywhere from 5 to 20 times more than a term life policy.

3. How is your health?

If you’re reasonably healthy, a medically underwritten policy will often be the more affordable option. If health is a concern, other options, such as guaranteed issue or accidental death policies (which we will discuss below), might be a better fit.

4. Is a digital purchasing option important to you?

Buying life insurance online may seem foreign to some. But assuming you’re provided with the right tools, it’s simple to choose a coverage amount, get sample quotes and apply for coverage online. If approved, you may even be able to start coverage that same day.

Term life insurance

This type of coverage is simple to understand, easy to apply for, and buy. Term life insurance provides dependable coverage at an affordable price. As the name conveys, term coverage lasts for a specific period of time — typically 10, 15, 20 or 30 years. Once the term length is up, coverage ends, or you can renew it, but at a higher price.

Why is term life insurance a popular choice? Because it offers coverage during the years your family needs it most and at a reasonable price. Depending on the term length and amount of coverage you purchase, it could offer life insurance protection until the mortgage is paid off, your partner is retired or your kids leave home.

If you need help figuring out the right amount of coverage and term length for you, an online life insurance calculator takes out the guesswork.

Term life insurance itself comes in a few varieties, so if you think it may be the right choice for you, here’s what you should know.

Medically underwritten term life insurance

Medically underwritten life insurance policies are often the most affordable types of coverage. These policies take into consideration your age, lifestyle choices, and personal and family health history to determine eligibility and pricing that’s personalized to you. Medically underwritten coverage also offers a more robust range of coverage options, from $100,000 to several million dollars.

Thanks to innovations in underwriting, some medically underwritten policies – like the Haven Term policy – can be purchased without a medical exam for a subset of applicants that qualify to skip it. Once a customer submits an application, they will be instantly notified as to whether they qualify to skip the medical exam or not. [Keep in mind that it’s always very important to be honest in the application process. The issuance of the policy or payment of benefits may depend upon the answers you give in the application and your truthfulness.]

Medically underwritten term life insurance is generally pretty affordable. Here are some examples of the cost of coverage for nonsmokers in good and excellent health for a Haven Term policy, issued by MassMutual.

AgeGenderHealthFace amountTerm lengthMonthly premium
25MaleGood$100,00030$12.77
FemaleGood$250,00030$16.59
MaleExcellent$500,00030$31.51
FemaleExcellent$1,000,00030$45.38
30MaleGood$100,00030$15.10
FemaleGood$250,00030$23.66
MaleExcellent$500,00030$36.26
FemaleExcellent$1,000,00030$54.46
35MaleGood$200,00020$17.73
FemaleGood$300,00020$20.56
MaleExcellent$500,00020$23.34
FemaleExcellent$750,00020$27.49
40MaleGood$200,00010$15.22
FemaleGood$400,00010$21.17
MaleExcellent$600,00010$21.12
FemaleExcellent$800,00010$23.41

Get a quote for medically underwritten term life insurance.

Who it may be a good fit for

Medically underwritten term life insurance like the Haven Term policy is simple to understand, easy to buy, and provides dependable coverage at an affordable price. This is a great option if affordability is your main concern and you don’t mind taking a medical exam, if needed. You can apply for a policy with a face amount of $500,000 or more to help protect your family if you were no longer in the picture. And who knows, maybe you’ll be one of the lucky ones who qualifies to skip the medical exam.

Simplified issue life insurance

Simplified issue policies typically require applicants to fill out a short questionnaire in the underwriting process, with a few health-related questions. No medical exam is needed to apply and get a coverage decision.

Because no medical underwriting is conducted and because the insurer knows less about you, these policies are usually more expensive than a medically underwritten policy. Why? Generally, the more an insurer understands about you, the more affordable coverage may be.

Additionally, with simplified issue policies, maximum coverage amounts are usually limited to $500,000 or less. Here are some examples of the cost of coverage for a Haven Term Simplified policy, issued by C.M. Life Insurance Co., a MassMutual subsidiary. Quotes shown are for nonsmokers.

AgeGenderHealthFace amountTerm lengthMonthly premium
25MaleGood$100,00030$12.77
FemaleGood$250,00030$16.59
MaleExcellent$500,00030$31.51
FemaleExcellent$1,000,00030$45.38
30MaleGood$100,00030$15.10
FemaleGood$250,00030$23.66
MaleExcellent$500,00030$36.26
FemaleExcellent$1,000,00030$54.46
35MaleGood$200,00020$17.73
FemaleGood$300,00020$20.56
MaleExcellent$500,00020$23.34
FemaleExcellent$750,00020$27.49
40MaleGood$200,00010$15.22
FemaleGood$400,00010$21.17
MaleExcellent$600,00010$21.12
FemaleExcellent$800,00010$23.41

Get a quote for simplified issue life insurance.

Who it may be a good fit for

Simplified issue life insurance, like a Haven Term Simplified policy, may be a good option for those who know they absolutely do not want to take a medical exam. It’s important to note that issuing the policy or paying its benefits depends upon your insurability, based on your answers to the health questions in the application, and your truthfulness.

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Up to $500,000 in coverage. 100% no medical exam.

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Return of premium life insurance

One of the biggest reservations people have about term life insurance is that you’re paying premiums for a what-if scenario. And, in almost all cases, you hope the what-if won’t happen.

And then where do all those premiums go? The answer in most cases is that the insurance company keeps your premiums in order to pay out claims to beneficiaries of customers who pass away during their term. A notable exception is the return of premium policy.

A return of premium policy, which in some cases can also be an optional rider that’s either available for a fee or is included as part of a term insurance policy, refunds the insurance premiums paid if you outlive the term of your policy. Generally, if you purchased a 30-year term life insurance policy, for example, and lived beyond the duration of the policy, most or all of the premiums you paid get reimbursed to you. Yes, that’s a lot of money coming back your way — but return of premium riders often raise the price of your premiums significantly for this feature.

Let’s do a cost comparison. A 30-year-old man in excellent health could pay anywhere from $90 to $100 per month for a 20-year, $500,000 return of premium policy, according to State Farm. For the same term length and face amount, a medically underwritten Haven Term policy, issued by MassMutual, would cost the same man less than $37 per month. So a return of premium policy will cost him at least $12,700 more over the life of the policy than medically underwritten term coverage.

Remember, the return of premium policyholder does get that money back at the end of the term. However, a return of premium policy lets an insurance company earn interest on your money over time instead of you. Additionally, if you let the return of premium policy lapse before the term ends — due to canceling or no longer paying premiums — you usually can’t reclaim the premiums you already paid. It works only at the end of the coverage term of the policy.

Who it may be a good fit for

A return of premium policy may be a good fit for someone who wants term coverage as well as a way to recoup premiums paid if you outlive the coverage term of the policy.

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The Haven Term policy is issued by MassMutual, an industry leader with over 160 years of experience.

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Permanent life insurance

If you want a life insurance policy that lasts the rest of your life, then permanent life insurance may be the right choice for you. A number of types of life insurance fall under the umbrella of permanent life insurance. The most common are whole life and universal life. Unlike term, permanent policies provide coverage for a lifetime and include a cash value component that can grow or shrink over time.

These features are why permanent policies can cost anywhere from 5 to 20 times more than a term life policy. Due to the significant difference in premium costs, permanent policies can be less affordable for cost-conscious families.

When you pay for a permanent life insurance policy, part of the money keeps your protection in place just like a term policy would do. And for some permanent policies, another part of your premium goes into a cash value feature.

This cash value component can build each year as you pay your premium, so over time, your policy can become more valuable. The policyholder may access their cash value, through partial surrender for a lump sum or loans, for any reason, such as emergencies or to help supplement their retirement income.

However, you should know that accessing cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse and may result in a tax liability if the policy terminates before the death of the insured.

Permanent life insurance policies have long-term implications on your financial plans, so we recommend you consult a financial professional before buying a whole life policy. If you are interested in the benefits of this type of policy, our parent company, MassMutual, has agents who would be glad to help.

Permanent life insurance policies come in several varieties with distinctions that are important since they will directly impact your premiums, coverage, and the overall complexity of managing the product.

Whole life insurance

Whole life insurance is one of the most popular permanent types of life insurance. It features a coverage amount and a level premium that won’t change during the life of the policy. Like all permanent policies, whole life insurance has the potential to accumulate cash value over time.

Whole life coverage, like all permanent policies, requires medical underwriting, which means your insurance company will ask questions about your health, your family’s health history, and your lifestyle and occupational choices in order to determine eligibility and pricing, and you’ll be asked to take a medical exam.

To get an understanding of pricing for permanent policies, State Farm would offer a 30-year-old man in excellent health a $500,000 policy starting at about $460 per month. It’s lifetime coverage with a cash value component … but it also costs 20 times more per month than a 20-year term life policy for the same man. Of course, if you wish to continue a term policy after its term ends, you would be faced with much higher premiums.

Who it may be a good fit for

Whole life insurance might be a good option if you seek coverage that lasts a lifetime and won’t expire before you pass away as long as the premiums are paid. The policy provides a cash value component that could be used to help supplement your retirement income.

Universal life insurance

Like a whole life policy, universal life insurance is permanent coverage, and it accrues cash value over time. But a key distinguishing feature of universal coverage is that it offers flexible premiums that may allow you to adjust how much you pay each year. You will need to, at least, pay the minimum premium amount of the policy per month – either through premiums or through the policy’s account value – or coverage will end.

In a universal policy, cash value earns interest at the greater of the current market rate or a minimum interest rate set by the policy. This means the cash value has less growth potential than in a variable universal life insurance policy, which is discussed below, where cash value is invested in the market, but possibly greater security because of the policy’s minimum interest rate.

Unlike a whole life policy, which has fixed premiums over the life of the policy, universal life insurance has flexible premiums, which means policyholders to be aware of the financial changes. If there is enough cash value, policyholders may be able to use that value to help pay their monthly premiums. On the other hand, policyholders also may have to pay more than their standard premium to bolster the cash value of their accounts.

Who it may be a good fit for

Flexibility is the key feature of universal life insurance policies. They are generally less expensive than whole life policies. This may make them a good option if you want permanent coverage with flexible premiums and death benefits and don’t mind having to keep tabs on the policy.

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Indexed universal life insurance

With indexed universal life insurance, the cash component of the policy is tied to the performance of a predetermined stock index, usually the S&P 500 or the Dow Jones Industrial Average. If the index makes gains, your policy could increase in value along with it.

In addition, your policy contract will clearly identify how much your investment could benefit from stock market gains. An indexed policy may guarantee against losses but cap any gains beyond a certain level. Or your policy’s account value may only participate in a certain percentage the performance of the index it’s tied to. For example, if your policy has an 80% participation rate, a 5% annual increase in the index would result in only a 4% increase in your policy’s account value.

These are factors that you’d want to discuss with your financial professional if you were considering an indexed universal policy.

Who it may be a good fit for

Indexed universal life insurance is a complex product and may appeal to a policyholder who wants a hybrid between the flexibility of a universal life insurance policy and some of the earning potential of variable universal life insurance.

Variable universal life insurance

In a variable universal life insurance policy, the policyholder chooses investment accounts in which their premiums are allocated. As with any type of investing, it’s possible to see significant earnings or losses.

While long-term investment gains might outpace the guaranteed returns of a whole or universal life policy, there are risks. In years when the market is down, your cash value will be diminished and could result in you having to pay higher premiums to boost your cash value.

In addition, variable universal life insurance, compared to other types of life insurance, typically has more fees built into your monthly premium to cover management, trading costs, and more. This is one reason many families may want to consider other types of life insurance with less risk and lower fees.

If you choose this type of policy, remember that it requires constant attention since the market changes quickly. For example, if the accounts in which the premiums are invested drop significantly, the loss of account value could mean higher policy costs to pay for the death benefit. If you are unable to pay the higher premiums or do not have sufficient cash value to cover the policy costs to maintain the policy’s death benefit, the policy would no longer fulfill its core purpose of providing a death benefit to the policyholder’s beneficiary.

Who it may be a good fit for

Variable universal life insurance is a good option for policyholders who want coverage for their entire lives, are comfortable with risk, and seek a potentially greater return than whole life policies and don’t mind the volatility of returns.

Guaranteed issue life insurance

Guaranteed issue life insurance is exactly what it sounds like. All applicants are guaranteed approval on coverage, regardless of age or health. Before you sign up for a guaranteed issue policy, be aware that this type of no-exam life insurance comes with a few caveats.

For starters, you’re often limited to a death benefit of $50,000 or less, which if you have financially dependents, probably isn’t enough money to cover their long-term needs. This type of coverage is generally viewed as a final expense policy, meaning that it’s designed to help your family pay for your funeral and cover any other costs associated with your death.

A guaranteed issue life policy also often comes with what’s called a “graded death benefit.” That means that your loved ones only receive a full death benefit if a certain number of years have passed between you taking out the policy and your death. This is to prevent people from signing up for life insurance when they know their life expectancy is short. The graded death benefit typically restricts the payout up to three years after you purchase a policy. This restriction is on all deaths due to natural causes. So if you unexpectedly pass away during this period, your beneficiaries actually may not receive a full death benefit.

Guaranteed issue life insurance is a type of permanent life insurance coverage. As long as you pay your premiums, coverage lasts for the rest of your life. Permanent life insurance is generally more expensive than term life insurance to begin with, and you might end up paying much more for a guaranteed issue life insurance policy than you would for a medically underwritten or simplified issue policy.

Who it may be a good fit for

This type of policy will usually cost more than a simplified issue or medically underwritten life insurance and provides $50,000 or less in coverage. It’s a good option if health concerns prevent you from qualifying for medically underwritten coverage. Yet, you want enough of a death benefit to cover funeral costs and other expenses when you pass away.

Accidental death insurance

Accidental death insurance, also known as accidental death and dismemberment or AD&D insurance, is not term life insurance or permanent life insurance. An AD&D policy provides a lump sum payout to your loved ones if you passed away from an accident, such as a car crash, a workplace injury or a homicide. The part of this policy that offers dismemberment coverage may provide some type of living benefit if the policyholder is severely injured, paralyzed or loses a limb, but not all accidental death policies include this provision.

These types of policies also don’t cover death from any type of illness, like cancer, heart disease or stroke, which are some of the leading causes of death as we reach our 40s and beyond. The limitations on when a death benefit is paid can leave your family at financial risk, so you should understand the fine print. It’s also important to note that many accidental death insurance policies are generally limit coverage to up to $500,000.

Who it may be a good fit for

An accidental death policy may be a good option if you have been declined term life insurance due to health reasons because it is not medically underwritten.

Life insurance comes in so many forms

If you have a partner, child, or family member who relies on your income for their financial health, then you probably need life insurance. The many types of life insurance coverage that are available to cater to different budgets, financial needs, and even health statuses so that most people can find the coverage that meets their needs and situation.

A term life insurance policy is often a good choice that appeals to people who want affordable coverage to last for a specific time period, such as until their loved ones are no longer financially dependent upon them. If you want coverage for the rest of your life along with the ability to build additional cash value within your policy, a permanent policy can offer that.

Choosing the right coverage for you does not need to be complicated. Consider what price fits into your budget as well as what role you want life insurance to play in your financial plan. And, most importantly, don’t lose sight of the fact that you’re doing all this research and buying a policy to help financially protect the most important people in your life.

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Nicole Dieker is a full-time freelance writer. Her work regularly appears on Bankrate, Lifehacker, The Write Life and numerous other sites. She is the author of Frugal and the Beast: And Other Financial Fairy Tales. Opinions are those of the author or the person interviewed.

Individuals cannot invest directly in an index. 

The Standard & Poor’s 500 Composite Stock Price Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the U.S. economy. Stocks in the Index are chosen for market size, liquidity, and industry group representation.

The Dow Jones Industrial Average is an index of 30 “blue chip” stocks of U.S. industrial companies. The Index includes a wide range of companies — from financial services companies, to computer companies, to retail companies — but excludes transportation and utility companies, which are included in separate indices. Unlike many other indices, the DJIA is not a “weighted” index, meaning it does not take market capitalization into account.

Haven Life Insurance Agency (Haven Life) does not provide tax, legal or investment advice. This material has been prepared for educational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, and investment advisors before engaging in any transaction.

Real Rate is based on your application and third party data obtained during underwriting.

Haven Term is a Term Life Insurance Policy (DTC 042017 [OK1] and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

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