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Life insurance is there to help reduce the financial burden on your loved ones when the inevitable happens. But every life insurance policy is different.
Whether you want to make sure your spouse can continue paying the bills if you die unexpectedly or you simply want to cover your own funeral costs, the best type of life insurance ultimately comes down to your needs and budget.
Learn more about the different types of life insurance to determine which one might be right for you:
Term life insurance
Whole life insurance
Universal life insurance
Variable life insurance
Burial insurance
Other types of life insurance
» MORE: Term vs. whole life insurance: Differences, pros and cons
Key terms in this article
Beneficiary | The person(s) or entity that receives the death benefit when the insured person dies. |
Cash value | A component of a permanent life insurance policy that grows over time and allows you to make withdrawals, borrow against it and more. |
Death benefit | The amount of money the life insurance company pays a beneficiary after the insured person dies. |
Permanent life insurance | A type of life insurance that usually lasts a lifetime and includes a cash value component. |
Premium | The cost of maintaining a life insurance policy. |
Term life insurance | A life insurance policy that lasts for only a set number of years. |
» MORE: Essential life insurance definitions and terms
Different types of life insurance
These are the most basic types of life insurance on the market and what each covers.
Types of life insurance | Coverage length | Builds cash value? | Death benefit |
|---|---|---|---|
Term | Temporary — typically 10, 20 or 30 years. | No. | Fixed. |
Whole | Lifetime. | Yes. | Fixed. |
Universal | Lifetime. | Yes. | Flexible. |
Variable | Lifetime. | Yes. | Flexible. |
Burial | Lifetime. | Yes. | Fixed. |
Term life insurance
Best for: Most people. Term life insurance is a simple, low-cost policy, and its main purpose is to replace your income when you die.
How it works: Term life insurance is typically sold in lengths of one, five, 10, 15, 20, 25 or 30 years. Coverage amounts vary depending on the policy but can go into the millions. Most people buy term life insurance for a length long enough to cover their prime working years. That way, if they die early, they can help a surviving spouse or other beneficiary meet short-term financial needs like paying off a mortgage or supporting their kids through college.
Pros: It’s often the cheapest life insurance, and it's sufficient for most people.
Cons: If you outlive your policy, your beneficiaries won’t receive a payout.
Learn about the best term life insurance companies
These carriers topped our list of the best term life insurance companies in 2023.
Insurer | NerdWallet rating |
|---|---|
Haven Life | 5.0 NerdWallet rating |
Guardian | 5.0 NerdWallet rating |
MassMutual | 5.0 NerdWallet rating |
Northwestern Mutual | 5.0 NerdWallet rating |
New York Life | 5.0 NerdWallet rating |
Pacific Life | 5.0 NerdWallet rating |
State Farm | 5.0 NerdWallet rating |
USAA | 4.5 NerdWallet rating |
NerdWallet rates insurers at the company level, not the policy level. This means our star rating reflects the company as a whole, and not its term life insurance policies specifically. | |
» MORE: Term life insurance: What it is and how it works
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Whole life insurance
Best for: Those who want a straightforward permanent policy and can afford the higher premiums.
How it works: Whole life insurance typically lasts your entire life, as long as you keep up with premiums. It’s the closest thing to “set it and forget it” life insurance you’ll find. In general, your premiums stay the same, you get a guaranteed rate of return on the policy’s cash value, and the death benefit amount doesn’t change.
Pros: It usually covers you for your entire life, builds cash value and is relatively simple compared with other permanent life insurance options.
Cons: It’s typically more expensive than term life, so if you're looking for affordable life insurance, you might want to explore other options.
Learn about the best whole life insurance companies
Whole life insurance is a lengthy financial commitment, so you want to compare your options. These are NerdWallet's best whole life insurance companies in 2023.
Insurer | NerdWallet rating |
|---|---|
Guardian | 5.0 NerdWallet rating |
MassMutual | 5.0 NerdWallet rating |
Northwestern Mutual | 5.0 NerdWallet rating |
New York Life | 5.0 NerdWallet rating |
State Farm | 5.0 NerdWallet rating |
NerdWallet rates insurers at the company level, not the policy level. This means our star rating reflects the company as a whole, and not its whole life insurance policies specifically. | |
» MORE: Whole life insurance: What it is and how it works
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Universal life insurance
Best for: People who want permanent life insurance that can flex to future needs.
How it works: A few policies fall under the universal life insurance umbrellas. But generally, this type of coverage allows you to adjust your premiums (within limits) and has a cash value component that grows based on market interest rates. Premiums typically increase over time, forcing you to increase your premium payments or cover rising costs by subtracting from your cash value account or death benefit. Universal life insurance is different from indexed universal life insurance — with those policies, the cash value growth is tied to a stock or bond index like the S&P 500.
Pros: It’s typically less expensive than whole life insurance and can adapt to your needs as life changes.
Cons: The death benefit and cash value growth are not guaranteed.
» MORE: What is universal life insurance? Pros, cons and cost
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Variable life insurance
Best for: Those with a higher risk tolerance who want greater control over their cash value investments.
How it works: This type of cash value life insurance is tied to investment accounts, such as bonds and mutual funds. Variable life insurance premiums are typically fixed and the death benefit is guaranteed, regardless of how the market fares. If you’re considering a policy like this, a fee-only financial advisor — a planner who doesn’t earn commissions based on product sales — can help you choose the best one.
Pros: There is potential for considerable gains if your investment choices do well.
Cons: It requires you to be hands-on in managing your policy because the cash value can change daily based on the market.
🤓Nerdy Tip
Some insurers offer a hybrid policy known as variable universal life insurance. This has similar features to variable life insurance, except the premiums are adjustable — which may suit those who don’t want to commit to paying the same amount in premiums each month.
» MORE: A guide to variable life and variable universal life insurance
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Burial insurance
Best for: People who want to cover their own funeral, burial and other end-of-life expenses.
How it works: Also known as final expense insurance, burial insurance is a small whole life insurance policy that is meant to help your family pay for your funeral, burial and other expenses after your death, like outstanding medical bills. The death benefit is guaranteed and typically ranges from $5,000 to $25,000.
Pros: A medical exam isn’t typically required, making it more accessible to seniors with pre-existing health conditions.
Cons: Coverage is capped at low amounts. If you die within two or three years of taking out your policy, your insurer may not pay the full death benefit.
Learn about the best burial insurance companies
These insurers made our list of the best burial insurance companies in 2023.
Insurer | NerdWallet rating | Age eligibility |
State Farm | 5.0 NerdWallet rating | Issue age: 45 to 80 (50 to 75 in NY). |
AARP/New York Life | 5.0 NerdWallet rating | Issue age: 50 to 80 (50 to 75 in NY). |
American Family | 4.0 NerdWallet rating | Issue age: 50 to 80. |
Ethos | 3.5 NerdWallet rating | Issue age: 65 to 85. |
Mutual of Omaha | 3.5 NerdWallet rating | Issue age: 45 to 85 (50 to 75 in NY). |
NerdWallet rates insurers at the company level, not the policy level. This means our star rating reflects the company as a whole, and not its burial insurance policy specifically. | ||
» MORE: How to use burial insurance to pay for final expenses
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Other types of life insurance
Group life insurance is typically offered by employers as part of the company’s workplace benefits. Premiums are based on the group as a whole rather than each individual. In general, employers offer basic coverage for free, with the option to purchase supplemental life insurance if you need more coverage.
Mortgage life insurance covers the current balance of your mortgage and pays out to the lender, not your family, if you die.
Credit life insurance pays the balance of a specific loan, like a home equity loan. Your bank might offer to sell you a credit life insurance policy when you take out a loan. If you die, the policy pays off the lender, not your family.
Accidental death and dismemberment insurance covers you if you die in an accident, such as a car crash. AD&D insurance also pays out for the loss of limbs as well as the loss of your sight or hearing — but it’s typically offered only through the workplace.
Joint life insurance insures two lives, usually those of spouses, under one policy:
First-to-die: Pays out after the first policyholder dies. The policy would then expire; it doesn’t continue to cover the second person. These policies are extremely rare because the demand for them is low.
Second-to-die: Pays out after both policyholders die. These policies can be used to cover estate taxes or the care of a dependent after both policyholders die.
» MORE: Compare life insurance quotes
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Different types of life insurance by underwriting
Underwriting refers to how a life insurance company calculates the risks of insuring you. A policy’s underwriting determines a few things, like how quickly your coverage will go in force, whether you’ll need to take a medical exam and the price you’ll pay.
There are three main types of life insurance underwriting:
Fully underwritten life insurance
If you're healthy, fully underwritten policies will generally be the cheapest option.
This is because the life insurance application process typically includes a medical exam and questions about your health as well as questions about your family’s health history, your hobbies and your travel plans.
Insurers use this data to price the policy more accurately based on your specific life expectancy. To get the most favorable rate, aim to provide as much information as possible when filling out your application.
Simplified issue life insurance
Simplified issue policies don’t require you to take a medical exam. However, you may be asked a few health questions and could be turned down based on your answers.
Instant-approval life insurance policies use quick, online health questionnaires as well as algorithms and big data to speed up the application process.
Guaranteed issue life insurance
Guaranteed issue life insurance requires no medical exams and no health questions. In short, you can’t be turned down for coverage if you’re within the eligible age range, which is typically 40 to 85. However, this is an expensive way to buy life insurance, and coverage amounts are generally low.
In addition, these policies have graded death benefits, which means if you die within the first few years of having the policy, your beneficiaries may receive only a partial payout. People often buy this type of life insurance if they’ve been turned down elsewhere because of their health but they want to cover final expenses, such as funeral costs.
Which type of life insurance should you get?
Still not sure which type of life insurance is right for you? Use this tool to help you figure out if you even need life insurance, and if so, which type of policy might be best.
The best life insurance companies in March 2024
The best life insurance companies stand out for their financial strength and coverage options. Our list for 2024 includes some of the largest life insurance companies in the U.S., as well as smaller, online-only insurers.
Insurer | NerdWallet rating | Policies offered |
MassMutual | 5.0 NerdWallet rating | Term, whole, universal and variable universal. |
Guardian | 5.0 NerdWallet rating | Term, whole, universal and variable universal. |
Northwestern Mutual | 5.0 NerdWallet rating | Term, whole, universal and variable universal. |
New York Life | 5.0 NerdWallet rating | Term, whole, universal and variable universal. |
Pacific Life | 5.0 NerdWallet rating | Term, universal, variable universal and indexed universal. |
State Farm | 5.0 NerdWallet rating | Term, whole and universal. |
AARP | 5.0 NerdWallet rating | Term, whole and guaranteed issue whole life. |
Frequently asked questions
How much does life insurance cost?
The average cost of life insurance is $26 a month. To get this figure, we looked at a healthy 40-year-old buying a 20-year, $500,000 term life insurance policy. Rates vary among insurers, so be sure to compare life insurance quotes to get the best possible price.
Do I need life insurance?
If you have dependents relying on your income, you might need life insurance. The payout from your policy could ease the financial burden on your loved ones if you were to die unexpectedly.
What's the best type of life insurance to get?
The best life insurance policy for you comes down to your needs and budget. For most people, term life insurance is sufficient and the cheapest type of coverage. It lasts a set period and provides a guaranteed payout if you die during that term.
Which types of life insurance generate cash value?
Cash value grows in permanent life insurance policies, including whole, universal, and variable life insurance. Once enough cash value has accumulated, you can borrow against your policy, withdraw the cash or use it to pay premiums.
Which types of life insurance offer flexible premiums?
You can adjust your premiums with universal life and variable universal life insurance. Your policy will be issued with a set premium, and you can pay more or less or skip premiums by contacting your insurer. With term and whole life insurance, premiums are typically fixed, making your payments predictable.
