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Life Insurance Types and Options

These are the four major types of non-variable life insurance coverage available:

  • Term Life
  • Whole Life
  • Guarantee Universal Life
  • Index Universal Life
  • Guaranteed Coverage/Guaranteed Acceptance Life

Each of these provides a death benefit, but they can differ significantly in length of coverage, premium flexibility, accumulation and distribution of cash values, and other factors. While specific policies vary by company, these general descriptions can help you understand the basic differences.

Term Life Whole Life Guarantee
Universal Life
Universal Life
Guaranteed Coverage/
Guaranteed Acceptance Life
Coverage needs Temporary period of time 10-30 years Lifetime Up to lifetime Up to lifetime Lifetime
Cash value accumulation No cash value Guaranteed cash value Interest crediting rate set by the insurance company Interest crediting rate can be linked to the percentage change of an index Guaranteed cash value
Premium flexibility Fixed for an initial period Fixed Flexible Flexible Fixed
Guaranteed death benefit For length of term period coverage Lifetime Lifetime coverage or "dialed down" to any length of coverage Guarantees typically range from 10-30 years Modified death benefit
Term Life Insurance

Term life insurance is basic coverage that generally does not build life insurance policy cash value. Consumers typically buy term life insurance to provide death benefit protection for a specific period of time.

Premiums for term coverage are usually initially lower than other types of life insurance because the policy only provides a death benefit for a defined period. Later, some term insurance policies can be extended or converted into another type of coverage.

However, if you renew or convert your coverage, your new premium will probably be higher than your previous coverage, and can continue to increase as you grow older.

Whole Life Insurance

As its title indicates, whole life insurance provides a lifetime death benefit for a set premium amount and builds cash value you can use while you’re living.

The strength of a whole life insurance policy is that it provides guaranteed cash values and benefits in return for fixed premiums. A trade-off to consider is that a whole life policy may build cash value at a lower rate than alternative coverage options.

Guarantee Universal Life Insurance

Guarantee Universal life (GUL) insurance policies provide a death benefit as well as the opportunity to build policy cash value. This coverage is different from term and whole life insurance because, within policy limits, you can vary the amount and timing of your premiums. Typically, you can also increase or decrease your death benefit (based on your insurability). As long as you maintain sufficient policy value to keep your policy in-force, your policy’s flexibility enables you to pay premiums as your circumstances allow.

Your cash value in a GUL policy is determined by the amount of premiums you pay, the declared interest crediting set by the insurance company, and policy charges.

As a policy owner, you have more flexibility with GUL than with whole life, but you assume additional risk. GUL policies usually have fewer guarantees than whole life coverage, so you must carefully manage premium payments and any distributions taken to help ensure your policy will stay in-force. This type of life insurance policy usually offers a built-in no lapse guarantee that can last for the lifetime of the insured life or for a shorter period selected by the policy owner.

Index Universal Life Insurance

Index universal life (IUL) insurance includes the premium flexibility and adjustable death benefit that typical UL coverage provides. Plus, IUL can provide the potential for greater policy value growth than UL, with less risk to you than a Variable Universal Life policy.

IUL policies link the growth of policy value to the percentage change of one or more widely-followed financial market indices such as the S&P 500® Index, Nasdaq-100®, or Dow Jones Industrial Average. As a rule, IUL policies also include a fixed-rate interest crediting option.

Insurers offering IUL policies credit interest at rates that are linked to the percentage change of a selected index. These companies typically provide a "crediting rate zone" with a cap that represents the maximum crediting rate and a floor that represents the minimum crediting rate. Based on the percentage change in the index, interest will be credited between the cap and floor.

With IUL, your policy value can be credited with higher interest rates than whole life and UL policies typically provide. You may have greater downside protection than Variable Universal Life, but, compared to Variable Universal Life, the upside potential is more limited.

Index Universal Life Insurance coverage is typically purchased for one of two reasons:
A death benefit index UL product solution is designed to provide affordable death benefit guarantees with the opportunity for cash value growth to provide financial flexibility.

A cash accumulation index UL product solution provides a death benefit, and is also designed to accumulate policy value that can be used to supplement income.

Guaranteed Coverage/Guaranteed Acceptance Life

As its title indicates, guaranteed coverage or guaranteed acceptance life insurance is guaranteed, meaning the ability to obtain the coverage is guaranteed no matter what health issues you currently have or have had in past. This coverage is a type of whole life insurance that, after an initial waiting period, provides a lifetime death benefit for a set premium amount and builds cash value you can use while you’re living.

Guaranteed coverage or guaranteed acceptance life insurance typically has a modified death benefit. A modified death benefit means that for a certain amount of time after obtaining the policy, usually two years, your death benefit will be less than the face amount of your policy. Meaning that if you pass away within the first two years of your policy anniversary date, that the beneficiary will be paid a percentage of the face amount of the policy. After the "waiting period", the full face amount of the policy will be available from that point forward.

This type of policy is used as a last resort for individuals that have major health issues or for those that have been denied coverage in the past. This type of coverage will usually be the most costly of all life insurance types.

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