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

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. 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 to help you understand what you are buying. Be sure to consult with 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.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

types of life insurance

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

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.

Interested in refinancing student loans?

Here are the top 8 lenders of 2020!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
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 3.20% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% 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 December 13, 2019, 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 12/13/2019. 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 our student 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 SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.46% APR (with AutoPay) to 7.61% APR (without AutoPay). Variable rates currently from 2.31% APR (with AutoPay) to 7.61% (without AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.31% APR assumes current 1 month LIBOR rate of 2.31% plus 0.75% margin minus 0.25% for AutoPay. If approved for a loan, the fixed or variable interest rate offered will depend on your credit history and the term of the loan 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.

3 Important Disclosures for Figure.

Figure Disclosures

Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.

4 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 1/1/2020. Variable interest rates may increase after consummation.

5 Important Disclosures for Laurel Road.

Laurel Road Disclosures

Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.


There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.


For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
For eligible Associates degrees in the healthcare field (see Eligibility & Eligible Loans section below), Lender will refinance up to $50,000 in loans for non-ParentPlus refinance loans. Note, parents who are refinancing loans taken out on behalf of a child who has obtained an associates degrees in an eligible healthcare field are not subject to the $50,000 loan maximum, refer to for more information about refinancing ParentPlus loans.


Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).

Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.

All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to for applicable terms and conditions.

For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.


The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.


The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.


After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.

We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.

We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.

If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.


This information is current as of November 8, 2019 and is subject to change.

6 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.

7 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 1.76% effective November 10, 2019.

8 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.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 12/019/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.

1.99% – 6.89%1Undergrad
& Graduate

Visit Earnest

2.31% – 7.36%2Undergrad
& Graduate

Visit SoFi

2.06% – 6.81%3Undergrad
& Graduate

Visit Figure

2.62% – 6.12%4Undergrad
& Graduate

Visit College Ave

1.99% – 6.65%5Undergrad
& Graduate

Visit Laurel Road

1.99% – 7.06%6Undergrad
& Graduate

Visit Splash

1.85% – 6.13%7Undergrad
& Graduate

Visit CommonBond

1.90% – 8.59%8Undergrad
& Graduate

Visit Lendkey

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. 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 to help you understand what you are buying. Be sure to consult with 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.

Published in Big Money Decisions, Insurance