Life Insurance 101: Find Out Which Type Is Right for You

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types of life insurance

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Eighty percent of households without life insurance would have trouble making ends meet within a few years if the primary breadwinner died prematurely, according to LIMRA. The research firm also found that more than half of those households would start experiencing financial problems immediately.

Even if you don’t have kids, you might need life insurance. But with so many types of life insurance available, it can be hard to know which one to choose.

As a former life insurance agent, I can tell you that many life insurance agents recommend the insurance policies that make them the most money — and cost you the most money — rather than what works best for you.

Here’s how you can differentiate between the types of life insurance and decide which one is right for you.

3 types of life insurance you should know about

Although there are more than three types of life insurance policies, they all fall into three groups: term life insurance, whole life insurance, and universal life insurance.

1. Term life insurance

Term life insurance is the cheapest life insurance option. It’s also the best option for most people.

As the name suggests, a term life insurance policy is good for a specific term. If you die during the specified period, the insurance company pays out the death benefit to your beneficiaries. But if you don’t, you don’t get anything back.

Here are the most common types of term life insurance policies you’ll come across.

Level term

Level term insurance is the most popular kind of term life insurance policy. You can typically choose your term — say, 10, 20, 30, or 40 years — and your monthly premiums stay level throughout the life of the term.

The longer the term, the higher the monthly premium. That’s because you’re extending the time frame in which you could die prematurely, increasing the risk to the insurance company.

Who it’s good for: Level term life insurance is best for someone who wants coverage on the cheap. If you’re a healthy 35-year-old woman, you could get a 20-year policy with $500,000 worth of coverage for as little as $18 per month.

Annually renewable

Instead of offering the same monthly rate over the life of the policy, annually renewable term insurance renews every year at a higher price.

You don’t have to prove every year that you’re still eligible, though. Instead, you lock in a period from the start — say, until you’re 80 years old — and remain eligible, even if your health declines.

Typically, annually renewable policies are cheaper than level term policies up front but end up being more expensive over time.

Who it’s good for: Young people who anticipate little or no change in their health in the next five to 10 years. At that point, when their annually renewable term policy gets more expensive, they can consider replacing it with a cheaper level term policy.

Guaranteed issue term

Not everyone can qualify for a regular term insurance policy. If you have or have had major health issues, most insurance companies don’t want to risk insuring you.

Guaranteed issue term is just that. Even if you have a terminal disease, you qualify. The caveat is it comes at a high cost, which makes it unaffordable for some people.

Who it’s good for: People with major health problems who can afford the premiums but not an untimely death.

Decreasing term

With this type of term policy, your death benefit decreases over time as you pay a level premium. It’s typically cheaper than a level term policy.

Who it’s good for: This option might be a good if your only life insurance need is to pay off a debt with a decreasing balance, such as a mortgage. If you also need insurance for other expenses, though, opt for level term.

Increasing term

In contrast to a decreasing term policy, your death benefit increases over time with this option, and so do your monthly premiums.

Who it’s good for: An increasing term policy might be worth considering if you don’t have room in your budget now for a big policy but expect to earn more money in the future.

2. Whole life insurance

Whole life insurance is a kind of permanent life insurance and is guaranteed to remain in force for your whole life as long as you keep paying the premiums. Your premiums typically will remain the same over the life of the policy.

Here are the different features of whole life insurance you’ll come across.

Cash value

In addition to a death benefit, whole life insurance also has a cash-value component that acts as a type of savings account. Over time, the earnings in the cash-value account grow tax-deferred.

That said, the rate of return you receive on a whole life cash-value account typically is lower than what you might earn if you invest the money instead. As a result, it’s often recommended that you buy term insurance and invest the difference you save on the policy.


Since whole life insurance is guaranteed to pay out and also includes cash value, it’s much more expensive than term life insurance.

For example, the same healthy 35-year-old woman who could get a 20-year $500,000 level term policy for $18 per month would pay at least $450 per month for the same coverage with a whole life policy. That’s 25 times more expensive.

Who it’s good for: Whole life insurance is expensive, so it isn’t a good choice for most people. Here are just a couple of situations in which it might be worth considering:

  • You’ve maxed out all your tax-advantaged retirement accounts and are looking for other options to save for the future with a tax shelter.
  • Your estate is large enough to be liable for estate taxes. Whole life insurance can be used by your loved ones to pay the tax.

3. Universal life insurance

Universal life insurance, another form of permanent insurance, also offers a lifetime death benefit and a cash-value account. The main difference is you might get more flexibility than you would with whole life insurance, depending on which type of universal life insurance you have.

There are three main types of life insurance in this group. Here are the details of each one.

Traditional universal life

With this type of universal life insurance, your monthly premiums are flexible. You typically have to pay enough to cover the cost of the policy’s death benefit but can pay more toward the cash-value account if you want.

There’s a guaranteed minimum rate of return on your cash-value account, so your balance will grow over time, even if the market doesn’t.

You can use funds from your cash-value account to pay your premiums, giving you the option to forego paying out of pocket.

That said, if your cash-value account dries up and you don’t pay enough to cover the cost of the insurance, the policy will cancel.

Who it’s good for: People who need permanent insurance but don’t like the inflexibility of a whole life insurance policy.

Variable universal life

The main difference between variable universal life and traditional universal life is that a variable policy allows you to choose how to invest your cash-value funds. You’ll also have access to investments with a higher return potential — although they come with more risk.

What’s more, there’s no minimum guaranteed rate of return like there is with a traditional universal life policy. Both traditional and variable universal life insurance policies can be as expensive as a whole life policy.

Who it’s good for: People who need permanent insurance and want flexibility and a higher return potential.

Guaranteed universal life

This insurance policy is a type of term-permanent hybrid. It typically offers lifetime insurance coverage but doesn’t come with flexible premiums, and there’s little to no cash value involved.

Going back to our 35-year-old healthy woman, she could pay as little as $170 per month for a guaranteed universal life policy — more expensive than a term policy but cheaper than whole life.

Who it’s good for: Someone who wants permanent insurance coverage but doesn’t care about the cash-value feature.

How to choose the right life insurance policy

With so many types of life insurance policies, it can be daunting to narrow them down.

For most people, a level term insurance policy is the best option. It’s simple and inexpensive and does the job without any frills or complications. If your situation is more complex, though, you might want to enlist the help of an insurance agent.

The good news is there are trustworthy life insurance agents out there. Do some research and go into the conversation with what you’ve learned about the different life insurance types. The right agent can get you the best life insurance rates from the best companies.

Once you know what type of life insurance is right for you, find out how much insurance you need before you start shopping around.

Coming up with that number can be as simple as multiplying your annual income by 10 to 20, depending on your family’s lifestyle.

Alternatively, you can list out the different things you want to be covered by the insurance, such as:

  • Paying final expenses, including funeral and medical costs
  • Paying off outstanding debt
  • Covering future college costs
  • Replacing your income

Getting the right kind and amount of life insurance can be a long process. But if you do it correctly, your family members will have the protection they need if something unexpected happens and you can no longer provide for them.

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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit, email us at, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.899% APR to 8.179% APR (with AutoPay). Variable rates from 2.570% APR to 6.980% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. SoFi rate ranges are current as of September 14, 2018 and are subject to change without notice. See APR examples and terms. Lowest variable rate of 2.570% APR assumes the current index rate derived from the 1-month LIBOR of 2.08% plus 0.740% margin minus 0.25% AutoPay discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.

5 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.57%-8.17% (2.57%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit We also have several resources available to help the borrower make a decision at, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Estimated average savings amount is based on 14,659 Education Refinance Loan customers who saved on loans between August 1, 2017 and July 31, 2018. The calculation is derived by averaging monthly savings across Education Refinance Loan customers whose payment amounts decreased after refinancing, calculated by taking the monthly payment prior to refinancing minus the monthly payment after refinancing. We excluded monthly savings from customers that exceeded $4,375 and were lower than $20 to minimize risk of data error skewing the savings amounts. Savings will vary based on interest rates, balances and remaining repayment term of loans to be refinanced. Borrower’s overall repayment amount may be higher than the loans they are refinancing even if monthly payments are lower.

2.57% – 6.98%3Undergrad
& Graduate
Visit SoFi
2.47% – 5.87%1Undergrad
& Graduate
Visit Earnest
2.47% – 8.03%4Undergrad
& Graduate
Visit Lendkey
2.80% – 6.22%2Undergrad
& Graduate
Visit Laurel Road
2.48% – 6.25%5Undergrad
& Graduate
Visit CommonBond
2.57% – 8.17%6Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.