Guide to Life Insurance Terms and Product Types

Learn more about all the types of life insurance products with this guide. If you need specific advice, talk to an advisor today!

12 Minute read

Originally published: October 19, 2022

Guide to Life Insurance Terms and Product Types

Guide to Life Insurance Terms and Product Types

Learn more about all the types of life insurance products with this guide. If you need specific advice, talk to an advisor today!

12 Minute read

Originally published: October 19, 2022

Guide to Life Insurance Terms and Product Types

Whether this is your first time purchasing life insurance or you’ve been shopping around for a while, you’ve undoubtedly been exposed to the various choices and policy types that are available to you. But what exactly does each of these products mean and what do they offer you? In this blogpost, we’ll go over each common type of Life Insurance product available to you.

What is Traditional (fully underwritten) Life Insurance?

Fully underwritten (traditional) life insurance refers to the underwriting process associated with applying for a policy. As the name suggests, fully underwritten policies means that you go through the entire underwriting process and notably, require a medical exam. Although this process increases the wait time of getting approved, it has the opportunity to lower the cost of your insurance premiums if you’re in good health.

Most policies you see and apply for will be traditional policies unless otherwise stated, and can be either term or permanent length policies.

What is Term Life Insurance?

The most common type of insurance people look for and get is Term Life Insurance. Term life insurance covers you for a set number of years, usually 10, 20, or 30 and has an expiration. It gives you protection when you’re most likely to need it. That is, when you are in your 30s, 40s, and 50s and may have a mortgage to pay off or young children to take care of. Note that you can also get term life insurance for your family, children, or as a rider.

Term life insurance is usually cheaper than other kinds because it only lasts for a set amount of time. If you want to save money on insurance, term life insurance is the way to go.

The way term insurance works is that your family or beneficiary will get a certain amount of money if you die before the term is over. The death benefit can be paid as a lump sum, a monthly payment, or an annuity.

When you sign up for term life insurance, you have to say how much coverage you want and how long you want it to last. The insurance company will use these details to figure out how much your premiums will be. Most of the time, you can buy term life insurance online.

What is Permanent Life Insurance?

The other main and most common type of insurance people look for or get is Permanent Life Insurance. Permanent life insurance is an umbrella term used for any type of life insurance that covers you for life. While term insurance lasts for a set number of years depending on your policy length, permanent life insurance lasts for life and is permanent (as long as you pay your premiums on time).

Most often, a permanent life policy lets you invest your money and gives you a set payout whether you die young or old. Part of your premium payment goes into an account called “cash value,” which is used to save money.

The cash value of your policy grows over time thanks to interest, and it can be used as a safety net when money is tight. You can use the cash value of a permanent life insurance policy to pay your premium, get a loan against it, or take some or all of it out to help you get through a tough financial time. You can even give up the policy in your older years and live off the money it is worth.

Below is a comparison of the various permanent life insurance types:

comparison of Universal Life vs Whole Life vs Term to 100 permanent policies

What Is Whole Life Insurance?

Permanent life insurance is also commonly referred to as “whole life insurance” – you could consider it the regular type of permanent life insurance.

There are many different types of whole life insurance, including:

1. Limited Pay Whole Life Insurance

With limited pay whole life insurance, you have to pay premiums for a certain duration, or until you reach a certain age. Once you reach the set age or number of years, you no longer have to pay your premiums. Although you stop paying premiums at this point, the benefits of your life insurance policy will last your whole life, and the cash value keeps going up.

2. Term-to-100 Life Insurance

This type of insurance gives you the best of both traditional permanent life insurance and term life insurance: coverage for life and affordable premiums.

Term-to-100 life insurance covers you for your whole life, but it costs less than standard permanent life insurance. Note that this is because it doesn’t have any cash surrender value, unlike the other options. Both the premiums and the death benefit will stay level, and when you turn 100, you no longer have to pay the premiums.

3. Participating vs. Non-Participating

A participating life insurance policy allows you to share in the profits of the insurance company through dividends, and offers participation in the company and its ownership. A non-participating policy, on the other hand, only gives insurance coverage. There are no dividends or ownership rights.

Participating whole life insurance costs more than non-participating life insurance because you get a share of the insurance company’s profits in the form of dividends.

What Is Universal Life Insurance?

Universal life insurance is whole life insurance with a twist. It covers you for life and builds cash value, but the premiums are flexible, the death benefit can be changed, and the growth of the cash value is not guaranteed.

A universal life insurance policy has both a minimum and a maximum premium amount. It’s up to you how much you want to pay for your premium, as long as it’s within the range that’s been set. This kind of flexibility can make it easier for people whose income changes from year to year to keep their insurance.

There is no guarantee that the cash value of a universal life insurance policy will grow. Rather, it depends on how much you pay in premiums and how well the market is doing.

The cash value of your policy earns interest at the same rate as the market rate. Even though the insurer guarantees a minimum annual interest rate, your cash value will grow faster if the market does better than expected. In the same way, your cash value will go up if you pay more premiums.

You can also change the death benefit of your universal life insurance policy as long as you stay within the limits of the plan. You can usually lower the death benefit at any time, but to raise it, you have to go through the underwriting process again, which includes a medical test.

Check out our guide on permanent insurance types for a more in-depth comparison of whole life and universal life.

What is Funeral Expense Insurance?

Funeral insurance, which is also called burial insurance or final expense insurance, is a product that can be bought to help family and friends pay for your funeral costs. It’s a type of permanent life insurance, which means that, as long as you pay the premiums, it will last as long as you do.

A traditional permanent life insurance policy replaces your family’s income if you die. A funeral insurance policy, on the other hand, is meant to pay for your funeral and other costs related to your death. So, burial insurance policies on their own aren’t good for people who are raising families and need life insurance to cover bigger costs or debts, like a mortgage, college tuition for their kids, and lost income during their best years of work. As their name suggests, these policies only give enough money to cover funeral and burial costs.

Funeral insurance vs life insurance differences in coverage and protection.

What is No Medical Life Insurance?

No Medical Life Insurance refers to the underwriting process associated with applying for a policy. As the name suggests, No Medical insurance means that you do not require a medical exam – a requirement that traditional (fully underwritten) policies require. No medical insurance removes the hassle of scheduling an appointment for a nurse visit and blood tests, and lowers the wait time of getting approved, which makes this type of life insurance ideal for people who are looking for a quick and painless way of getting life insurance. It’s also a helpful alternative for those who have medical conditions, and would have difficulty being approved for a traditional policy.

One thing to note about these policies are the price differences – in exchange of knowing less about your health with no medical exam, insurers will require a higher premium on no medical policies due to the risk of having little to no information about your health. If you’re fine with this, then No Medical might be right for you.

example of price differences for simplified and guaranteed insurance policies

What is Simplified Issue Insurance?

Simplified Issue Insurance is a type of No Medical Exam insurance, and can be either a term or permanent product. As the name suggests, this type of insurance is simplified in the process: it reduces the medical requirements that a traditional policy would ask for: typically, it will ask only a few questions about your medical health, and will not require a medical exam.

What is Guaranteed Issue Insurance?

Guaranteed Issue Insurance is a no medical exam and questions asked type of insurance product. Like the name suggests, this type of insurance is guaranteed acceptance, given that you are not younger or older than the requirements. Typically, this type of insurance is only available for ages 40-70, but some insurers will have different age limits. This type of insurance is most ideal for those who are older and may have severe medical conditions.

What is Mortgage Life Insurance?

Mortgage Insurance is insurance that protects your mortgage lender in the event that you default on your mortgage, which is why it’s also sometimes called mortgage default insurance or bank (creditor) insurance. In Canada, mortgage insurance is required for down payments that are less than 20% of the purchase price. Otherwise, it’s not mandatory. In the event that you do need it, purchasing mortgage insurance with a life insurance broker instead of with a bank will provide you with more flexibility with the insurance policy.

What is Group Life Insurance?

Group life insurance is one of the types of life insurance that companies offer to their employees as part of their employee benefit plan. Group life insurance has its pros and cons, just like any other kind of insurance. Group life insurance is great because it is easy to get, is accepted by most people, and is affordable.

Group life insurance is sometimes automatically signed up for, and sometimes all you have to do is fill out a form. Also, group life insurance doesn’t require a medical exam, which is great for older workers or those with serious health problems.

It is also much cheaper than other types of whole life insurance. Usually, your employer pays for a certain amount of coverage, which is usually equal to one to two times your salary. You’ll have to pay for extra coverage if you want it.

Even though group life insurance is helpful, it might not be a good idea to depend on it only because you can’t take it with you when you die.

If you change jobs, your coverage will end. Some insurance companies let policyholders change their group life insurance to individual life insurance if they leave their jobs, but the cost of the insurance could go up a lot. Also, group life insurance is a set solution: you can’t customize it to your needs.

What is the Best Type of Life Insurance for Me?

So, what type of life insurance is best for you?

It depends on what you want and how you’re living. If you’re not sure which type of life insurance is best for you or if you have any other questions about life insurance, talk to an advisor. They can help you figure out what kind of life insurance fits your needs and budget the best.

 Life insurance product and policies grouped into fully underwritten policies and no medical policies.

Keys Takeaways

  • Term life insurance is the most basic and affordable type of life insurance.
  • Whole life insurance provides lifelong coverage and builds cash value over time.
  • Universal life insurance offers flexible coverage and options for how your premiums are used.
  • No Medical Life Insurance offers insurance at a higher premium in exchange for no medical exams
  • Mortgage life insurance pays off your mortgage if you die.
  • Group life insurance is often provided by employers as a benefit.

Frequently Asked Questions (FAQs) about Life Insurance Types

Simplified issue life insurance will ask health questions and do a full underwriting outside of the traditional medical exam. This means you will need to be in good health in order to qualify for affordable rates. Guaranteed issue life insurance, on the other hand, requires no health questions, underwriting and guarantees approval. This comes at a higher cost than traditional life insurance policies.

Fully underwritten life insurance, also known as medically underwritten insurance or traditional insurance, is underwritten by an underwriter who will check for any health concerns or exclusions for your policy. Applying for a fully underwritten policy typically (although not always) requires a medical exam done by a nurse visiting your home

Underwriting is the process when an insurer analyzes your life insurance application to determine what your premium will be based on the policy you applied for and your health and lifestyle.

Burial insurance or funeral insurance is a type of life insurance option that you can use to help your loved ones pay for your final expenses. It offers a smaller benefit amount than traditional term life insurance because its focus is smaller: only to provide coverage for funeral and burial expenses.

Finding the right life insurance protection for you

Whether this is your first time purchasing life insurance or you’ve been shopping around for a while, you’ve undoubtedly already been familiar with the various choices that are available to you. A life insurance specialist can help you create the best plan and package for your needs.

At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to ensure the best solution for you and your needs. We provide expert life insurance solutions, including no medical life insurance, critical illness insurance, term life insurance, and permanent life insurance to build the best package to give you the protection you need. 

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, Alberta, and British Columbia, including areas such as Oakville, Richmond, and Medicine Hat.

Talk to an advisor today.

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