4 Main Types of Life Insurance, and How to Choose in 2026
There are four kinds of life insurance to choose from. Here’s a breakdown of what each one covers.
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Life insurance is there to ease the financial burden on your loved ones when the inevitable happens. Learn more about the types of life insurance to determine which one is right for you.
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- Term life insurance: Affordable and suitable for most people.
- Whole life insurance: Permanent, but pricier than term life.
- Universal life insurance: A more flexible alternative to whole life.
- Variable life insurance: Riskier, but higher potential growth in cash value.
How does life insurance work?
Life insurance is a contract between an insurer and an insured person. If that person dies while the policy is active, the life insurance company pays money in the form of a death benefit to the insured person’s beneficiaries. These can be people, entities (like charitable organizations) or trusts.
In return, the insured person agrees to pay premiums to keep the policy active or “in force” for a certain period of time or until a certain age.
Life insurance terms to know before shopping for a policy
| Beneficiary 🫂 | The person(s) or entity that receives the death benefit when the insured person dies. |
| Cash value💰 | A feature of a permanent life insurance policy with monetary value 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 after the insured person dies. |
| Permanent life insurance 📈 | A type of life insurance that usually lasts a lifetime and includes cash value. |
| Premium💲 | The cost of maintaining a life insurance policy. |
| Term life insurance ⏳ | A life insurance policy that lasts for a set number of years. |
Term life insurance vs. permanent life insurance
Most life insurance policies fall into two buckets: term or permanent life insurance.
Term life insurance is an affordable option that lasts a set number of years, known as the “term.” With this type of life insurance, if you outlive the policy, there is no payout and your coverage ends.
Permanent life insurance is designed to provide lifelong coverage and policies grow cash value. All of the following kinds of life insurance come under the umbrella of permanent life insurance.
- Whole life insurance.
- Simplified whole life insurance.
- Universal life insurance.
- Variable universal life insurance.
- Indexed universal life insurance.
- Joint or survivorship life insurance.
- Final expense or burial insurance.
What’s the difference between term and permanent life insurance?
Term life ⏳
Cheaper: Term life is generally the cheapest type of life insurance.
Temporary: Policies last for a set time period, such as 10, 20 or 30 years.
No cash value: You can’t borrow against or cash out a term life insurance policy.
Permanent life 🛡️
Pricier: Permanent life policies are usually more expensive than term life insurance.
Permanent: Policies can last the rest of your life.
Builds cash value: Policies grow cash value and once you've built enough, you might be able to cash out or borrow against the policy.
What's the best type of life insurance to get?
There’s no straightforward answer to the best life insurance because the best 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.
Compare different kinds of life insurance
| 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. |
Term life insurance
Term life insurance: Key facts
Costs Somewhat cheap compared to other types of life insurance.
Benefits Pays out if you die while the policy is in effect.
Who it's best for Most people, especially if you're interested in a simple, low-cost policy.
How it works: Term life insurance is usually 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 long enough to cover their prime working years. That way, if they die early, the money can help a surviving spouse or family member meet short-term financial needs. This might include paying off a mortgage or supporting kids through college.
- Pros: It’s often the cheapest life insurance, and it's enough for most people.
- Cons: If you outlive the policy, your beneficiaries won’t receive a payout.
Who it’s for: Most people, including young to middle-aged adults with families. Term life insurance is a straightforward, budget-friendly policy designed to replace your income if you die.
Types of term life insurance
Annual renewable term life insurance. 📅
This type of policy covers you for one year, with the option to renew after the year is up. Premiums usually increase after each renewal, making these policies advisable only if you have a short-term need for coverage.
Convertible term life insurance. 📑
A convertible policy allows you to upgrade to permanent coverage before a certain deadline. This gives you flexibility to take advantage of lower premiums for term life insurance with the option to convert to permanent life insurance later without taking a medical exam.
Decreasing term life. ⬇️
These policies have a death benefit that goes down over time, though premiums usually stay the same. One example is mortgage protection insurance. People may choose this type of policy to cover a specific debt that they plan to pay off during the term.
Return-of-premium term life insurance. 🔄
A return-of-premium life insurance policy refunds all or part of the premiums you paid if you outlive your term. It usually costs more than a regular term policy.
Whole life insurance
Whole life insurance: Key facts
Costs More expensive than term life.
Benefits Simple, permanent coverage that builds cash value and pays out after you die.
Who it's best for People looking for an uncomplicated lifelong coverage option.
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 also get a guaranteed rate of return on the policy’s cash value, and the death benefit amount doesn’t change. Note that burial insurance is a type of small whole life insurance policy that can help your family pay for your funeral, burial and other expenses after your death.
- Pros: It usually covers your entire life, builds cash value and is simple compared with other kinds of permanent life insurance.
- Cons: It’s often more expensive than term life, so if you're looking for affordable life insurance, explore other options first.
Who it’s for: Those who want a basic permanent policy and can afford higher premiums. Whole life insurance is also a good fit for adults with special needs dependents who are in the market for lifelong coverage.
Types of whole life insurance
Joint or survivorship whole life insurance. 👥
Joint life insurance covers two people instead of one person under the same policy. Survivorship or “second-to-die” life insurance pays out only when both people covered by the policy have died.
Whole life insurance for children. 👧
Most stand-alone policies for children are a form of whole life insurance, meaning coverage is valid for the child’s life.
Burial insurance. 🪦
These are usually small whole life policies that are designed to cover funeral, burial and end-of-life expenses. They’re typically open to applicants over 50.
Universal life insurance
Universal life insurance: Key facts
Costs Cheaper than whole life insurance, but costs more than term life.
Benefits Permanent coverage with options to change the premiums and/or death benefit.
Who it's best for People who want permanent life insurance with flexibility for changing budget needs.
How it works: Universal life insurance is an umbrella term that covers a few different kinds of policies. Generally, this coverage allows you to adjust premiums (within limits) and has cash value that grows based on market interest rates.
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 often cheaper than whole life insurance and can adapt to your changing needs.
- Cons: The death benefit and cash value growth are not guaranteed.
Who it’s for: People who want permanent life insurance that can flex for future needs. Universal life policies might strike a nice balance for those who want to use life insurance as an investment without taking on too much risk.
Types of universal life insurance
Guaranteed universal life insurance. 🛡️
Often described as a compromise between term and whole life, this type of policy offers lower rates because the cash value growth is minimal.
Indexed universal life insurance. 📈
With indexed universal life insurance, the cash value is tied to the performance of stock indexes like the S&P 500 and Nasdaq composite.
Variable universal life insurance. 🤔
This hybrid policy lets you choose your investments with higher potential returns and losses, so it’s best suited to risk-tolerant people.
Variable life insurance
Variable life insurance: Key facts
Costs Somewhat pricey, similar to whole life insurance.
Benefits Potential for significant cash value, subject to market performance.
Who it's for People willing to take a riskier, hands-on approach in exchange for higher potential gains.
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 usually 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 commission based on sales — can help you choose the best one.
- Pros: There is potential for aggressive 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.
Best for: Those with a higher risk tolerance who want greater control over their cash value investments.
🤓 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. It may suit those who don’t want to commit to paying the same amount in premiums each month. Loading
Other types of life insurance
🧑💼 Group life insurance is often offered by employers as a workplace benefit. Premiums are based on the group rather than each individual, and there’s no medical exam. In general, employers offer basic coverage for free. There may be an option to buy supplemental life insurance if you need more.
💳 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 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. It’s typically offered only through the workplace.
Find the right life insurance plan for you
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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 life insurance policy’s underwriting affects how quickly your coverage will go into effect, 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 usually includes a medical exam. There are also questions about your health, hobbies and travel plans as well as your family’s health history.
To get the best rate, provide as much information as possible on 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 and algorithms to speed up the application process.
Guaranteed issue life insurance
Guaranteed issue life insurance requires no medical exams or health questions. In short, you can’t be turned down for coverage if you’re within the age range, which is typically 40 to 85. However, this is an expensive way to buy life insurance, and coverage amounts are generally low.
These policies also have graded death benefits. This means if you die within the first few years of 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 but want to cover final expenses, such as funeral costs.
How much does life insurance cost?
The average cost of term life insurance is $26 a month or $312 per year, according to LifeStein.com, a life insurance brokerage. This estimate is for 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.
In contrast, the average cost of whole life insurance for the same healthy 40-year old buying $500,000 in coverage is $5,524 per year for men and $4,967 per year for women.
Which type of life insurance should you get?
Still not sure which type of life insurance is right for you? Think through these questions to help you decide.
- Why are you buying life insurance? A middle-aged adult who wants to replace income may need a different type of life insurance than someone older who wants to cover final expenses or diversify retirement savings.
- Will your financial needs change over time? Consider the length of your financial commitments such as student loans, mortgages or educational expenses for your children.
How much income do you need to replace?
Calculate how many prime working years you need to cover and how large the policy should be to cover future expenses for your family.
Quick and basic
Sometimes, a quick ballpark estimate is all you need to get started. You can always come back and work it out in more detail later.
Detailed
You can get the most accurate picture of your life insurance needs by taking a detailed look at your assets, expenses, debts and goals.
The best life insurance companies in 2026
The best life insurance companies stand out for their financial strength and coverage options. Our list for 2026 includes some of the largest life insurance companies in the U.S., as well as smaller, online-only insurers.
| Insurer | NerdWallet rating | Types of life insurance available | |
|---|---|---|---|
| Best overall and term life insurance | | Term, whole, universal and variable. | |
| Best whole life insurance | | Term, whole, universal and variable. | |
| Best for seniors | | Term, whole, universal and variable. | |
| Best universal life insurance | | Term, whole, universal and variable. | |
| Best instant life insurance coverage | | Term and no-exam. | |
| Best for veterans | | Term, whole and universal. | |
| NerdWallet rates insurers at the company level, not the policy level. This means our star rating reflects the company as a whole. | |||
» MORE: Compare life insurance quotes
Frequently Asked Questions
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.
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.
What is critical illness insurance?
Critical illness insurance is a specific type of health insurance coverage, but you can also get similar protection by adding a critical illness rider to your life insurance policy.
Critical illness insurance riders let you tap into your policy's death benefit if you're diagnosed with a serious health condition, like kidney failure or cardiac arrest. Eligible conditions vary by policy, so be sure to read the fine print.
Methodology
How we rate the best life insurance companies
✅ 445 life insurers reviewed
📝 210 policies assessed
🔢 1,515 data points analyzed
📊 Star rating categories
When NerdWallet evaluates life insurance companies, our editorial team considers the insurer's strengths and weaknesses, as well as the things that matter most to customers buying a long-term financial product. We then weigh these factors carefully:
💰 Financial strength (35%). We use AM Best ratings to confirm an insurer’s financial stability and ability to pay claims far into the future. The top life insurance companies have an exceptional financial strength rating of A+ or A++ (Superior).
🗣️ Consumer complaints (35%). Our top-rated life insurance companies have fewer than the expected number of complaints to state regulators over a three-year period, according to the National Association of Insurance Commissioners — so you can expect a smoother customer experience.
☎️ Consumer experience (20%). Insurers who allow consumers to contact them by email, phone and live chat earn the highest scores. The same goes for insurers who support online quotes, beneficiary changes and claims.
👀 Transparency (10%). Our methodology gives higher scores to transparent insurers who clearly display information about their policy options, coverage amounts and term lengths (if applicable) on their site.
⭐ What our star ratings mean
Companies with 5 stars are exceptional, with strong financials, diverse policy lineups and great reputations for customer service.
Companies with 4.5 stars are excellent, with solid financials and policy offerings, and good customer service track records.
Companies with 4.0 stars are good, and potentially great for people looking for niche coverage options.
Companies with 3.5 stars or fewer could do better in certain categories, like financial strength and customer complaints.
NerdWallet does not receive compensation for our star ratings or our reviews. Read more about our life insurance ratings methodology and editorial guidelines.
On this page
- How does life insurance work?
- Term vs. permanent life insurance
- The best type of life insurance
- Compare life insurance
- Term life insurance
- Whole life insurance
- Universal life insurance
- Variable life insurance
- Other types of life insurance
- Life insurance by underwriting
- Life insurance costs
- Shopping for a policy
- How much income do you need to replace?
- Best life insurance companies
- How we rate the best life insurance companies
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