The world of insurance is complex and can be difficult to navigate. There are many different types of insurance. There are life, auto, bike, property, and renters insurance, just to name a few. If you can afford it, I guarantee that there is an insurance company or bank that is willing to insure anything you want.

Back in 2004, supermodel Heidi Klum’s legs were insured for $2 million. She’s not the only one; other celebrities such as Rihanna, David Beckham, and Mariah Carey have also insured their voices and various body parts for millions. Most people are not entertainers. Their legs or voice do not provide millions of dollars of income each year, but their lives are important, not only to them but to those who are depending on them to provide and support them. Insurance is a way of protecting the things that are important to us and a way of managing risk in case something should happen to the things that are important to us.

Fidelity.com says, “A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured’s death.” In other words, you enter into an agreement with a life insurance provider to make a certain amount of payments (premium) for a certain time, and when you die, a certain amount of money (death benefit) goes to the beneficiaries that you have chosen. I know that was a mouthful, and not all life insurance policies are that simple. Below is a list of different types of life insurance policies that everyone should know.

1. Term Life

The first type of life insurance we’ll talk about is term life. Term life covers a set period of time, for example, 15 or 20 years. If you should die during that time, the beneficiaries of your policy will get the death benefit. If you should die after the set period, there will be no cash payout because the policy is no longer active. Also, failure to maintain your premium payments can cause your policy to lapse. A person may get this coverage because they have young children, and they are concerned that their children won’t be able to take care of themselves if something should happen to them. They may take out a 20-year term life policy because they believe their children would be independent enough to take care of themselves in 20 years.

2. Increasing Term

An increasing term, also known as a renewable yearly term, is a type of term life insurance where the premium increases over time. The policy will state the conditions in which the premium payments will increase. A young person may opt for such a policy to take advantage of lower premiums due to their age. They could also make the decision to buy an increasing term life policy because they know they will need more coverage in the future. They may be planning to start or extend their family, which will require more coverage in the future.

3. Level Term

Level term is another type of term life insurance, but the premium stays the same. A person may choose this type of policy because it’s simple and predictable. You know exactly how much you will have to pay and for how long. Other policies that are more complex may come with more conditions that can make the buying process more confusing.

4. Single Premium

With a single premium life insurance policy, a lump sum of money is paid upfront. A person who chooses single premium insurance does not have to worry about monthly, quarterly, or yearly premium payments. This guarantees a person’s beneficiaries will receive a death payout because the policy is all paid for. They don’t have to worry about the policy lapsing if they can’t keep up with the payments. Unfortunately, many people do not have a large sum of money lying around to buy a single premium life insurance policy.

5. Permanent

The next type of life insurance is permanent. Permanent life insurance covers the entire life of a person, unlike term life, which only covers a period of time. Keep in mind with any policy you must maintain your payments, or your policy will lapse even if it is permanent life insurance. There are many types of permanent life insurance, and differences will be based on personal needs and what the insurance company can offer. There are many reasons for a person to choose a permanent life insurance policy. One reason is that term life insurance is not enough and you want more coverage. Another simple reason is when they die, they want to be able to leave money behind for people they care about without them paying taxes. There are many more reasons, and these two examples only scratch the surface of all the reasons a person might choose a permanent life insurance policy.

6. Whole Life

Whole life insurance is a type of permanent life insurance with the exception that it accumulates a cash value. A cash value is a feature of some life insurance policies where a portion of your premium payments goes to the cost of providing the insurance, fees, and a cash accumulation. It is important not to confuse the cash value component of a life insurance policy with its death payout. Depending on the terms of the policy, you will be able to borrow against and draw from the cash value. You can use the money that you borrow against and withdraw from the cash value to do whatever you want. Depending on your circumstances, this can be a very useful feature.

7. Universal Life

Universal life is a type of permanent life insurance that also has a cash value element. This type of life insurance is more complex and requires a deep understanding of it to truly get the benefits that it can provide. A few features that the policy provides are the ability to adjust premium payments and the death benefit payout. The cash value also has the ability to gain interest.

8. Indexed Universal

An indexed universal is a type of universal insurance that falls under the permanent life insurance umbrella. It also has a cash value component that is based off an indexed rate of return. An example of an index is the S&P 500, which is made up of the 500 largest U.S. publicly traded companies. The rate of return would be based off of tracking the S&P 500. There is an interest rate guarantee component of the policy that allows the policyholder to still receive a positive return even if the index is declining. On the other hand, there is also a cap on how high the rate of return can be, even if the index that the policy is tracking continues to go higher.

9. Guaranteed Issue

Guaranteed issue is a type of permanent life insurance that is available for people who may not qualify for other types of life insurance due to medical history or their medical condition. Guaranteed issue does not require you to provide any medical information or answer any medical questions to be qualified for the policy. Some insurance companies may have age restrictions, but you will have to find out from the company. There is a 2-3 year waiting period depending on the insurance provider, such that if you should die, your beneficiaries do not get the death payout. There is an exception to accidental death. Your beneficiaries will receive all the premiums that you had contributed before your death and any interest that comes with it.

10. Variable Universal

Variable universal life insurance is a type of universal life insurance under the permanent life insurance category. It has the components of a death benefit payout and a cash value, but you have the option of investing the cash value into the stock market. A person may choose this policy because they have a greater appetite for risk, but they should keep in mind that there is a minimum and maximum cap on the rate of return.

11. Guaranteed Universal

Guaranteed universal life insurance is also a type of universal life insurance that falls under the permanent life insurance umbrella. It’s important to note that guaranteed universal policies do not accumulate a cash value, which tends to make the premium lower than other permanent life insurance. You will have lifelong coverage just as long as you keep up with your payments.

12. Burial Or Final Expense

Burial or final expense insurance is a type of permanent life insurance but smaller. Despite the name, the death payout can be used for anything. People usually get this because they want to tie up loose ends after they die. Loose ends could be a small portion of money they owe to friends or family.

Important Consideration

An important consideration when buying life insurance is determining how much you need. Say, for example, you purchase a burial life insurance policy because you determined that you will need $10,000 to bury you and another $10,000 for a family to plan your funeral. You need to take into consideration the impact of inflation on your death payout at the different possible periods of the time of your death. If you should die in the next couple of years, $20,000 may be sufficient. In the case that a person may die in twenty years, due to inflation $20,000 may have the equivalency of $10,000.

Final Thought

Great job making it to the end! To reiterate what was said earlier, life insurance can be vast and complex. There are many different types of life insurance policies, and the option of customizing a policy makes the different possibilities even greater. You now have a basic understanding of the different types of life insurance. This is enough to get you started on your own research in determining what policy you need and how much you need. Depending on who you are, the answer will be different. Also, depending on where you are in your life and different changes, it will also determine what and how much insurance you need. Consult several professionals and shop around before you settle on any policy. Also make sure you understand what you’re buying. Be patient with yourself and the process while you embark on your journey to know more about life insurance and even purchase any.