Types of Life Insurance

Term life insurance provides a death benefit if you die within a specified period—usually 10, 15, 20, or 30 years—and nothing if you outlive the term. You pay a level premium for the duration, and the policy ends when the term expires unless you renew (typically at a higher rate).

Permanent life insurance never expires as long as you pay premiums, and it accumulates cash value you can borrow against or withdraw. The four main types differ in how cash value grows. Whole life guarantees a fixed premium, death benefit, and a minimum cash value growth rate set by the insurer—predictable but modest returns, often 2-4% annually. Universal life offers flexible premiums and death benefits; cash value earns interest tied to an index rate the insurer declares periodically, which can fluctuate. Variable life lets you invest cash value in sub-accounts (similar to mutual funds), so returns and risk are higher—you could gain 8-10% in strong markets or lose value in downturns. Indexed universal life credits cash value based on a stock index (like the S&P 500) with a cap and floor, limiting both upside and downside.

Group life insurance is offered through an employer, union, or professional association, typically at no cost or low cost to you for a base amount (often one or two times your salary). Premiums don't depend on your health, so it's easy to get, but coverage is usually capped—$50,000 or $100,000 is common—and it ends when you leave the job unless you convert to an individual policy at a much higher rate.

Choose term if your need for coverage is temporary and you want maximum death benefit per dollar. Examples: a 30-year-old with young children and a $300,000 mortgage who needs $750,000 of coverage for 20-25 years, or a business owner covering a loan that will be paid off in 15 years.

What happens to term life insurance if I outlive the term?

The policy expires and coverage ends. You receive no payout, and premiums you paid are not refunded.

Can I borrow money from my term life insurance policy?

No. Only permanent policies build cash value that you can borrow against.

How much does life insurance cost on average?

Do I need life insurance if I have no dependents?

Probably not, unless you want to cover final expenses (funeral, debts) so your family isn't burdened, or you have co-signed loans someone else would inherit. Life insurance primarily replaces income for people who rely on you financially; without dependents, those funds usually go further in retirement accounts or emergency savings.