The Three Types of Life Insurance—And How to Choose What Actually Fits Your Plan
By: Alex Simons
Download a PDF file of the article here.
Life insurance is one of the most misunderstood areas of financial planning. Most people know they “should have it,” but few understand the differences between the types available—or how those differences impact their long-term plan. At a high level, there are three main categories: Group, Term, and Permanent life insurance. Each serves a different purpose, and the right fit depends on your goals, timeline, and overall financial picture.
1. Group Life Insurance: A Good Starting Point—But Rarely Enough
Group life insurance is typically offered through your employer as part of your benefits package. It’s appealing because:
It’s often low-cost or even free
There’s little to no underwriting
Enrollment is simple
But there are important limitations:
Coverage is usually capped (often 1–2x your salary)
It may not be portable if you leave your job
It’s not designed to fully protect a family long-term
Bottom line: Group coverage is a great baseline—but it’s rarely a complete solution. Think of it as a supplement, not the foundation of your plan.
2. Term Life Insurance: Simple, Affordable Protection
Term insurance is the most straightforward type of life insurance. You’re buying coverage for a specific period of time (e.g., 20 or 30 years). If something happens during that period, your beneficiaries receive a payout.
Why people choose term:
Lower cost compared to permanent insurance
Easy to understand
Ideal for covering specific obligations (mortgage, income replacement, raising children)
The tradeoff:
It expires
No cash value accumulation
Premiums increase significantly if you renew later in life
Bottom line: Term insurance can potentially be highly effective for temporary needs—especially during your highest earning and responsibility years.
3. Permanent Life Insurance (VUL): Protection + Strategy
Permanent life insurance is designed to last your entire life—but not all permanent policies are created equal. One of the most flexible (and often misunderstood) types is a Variable Universal Life (VUL) policy.
A VUL combines:
A death benefit (like all life insurance)
A cash value component that can be invested in market-based subaccounts
This means your policy has the potential to grow over time, depending on how it’s structured and managed.
Why some clients consider a VUL:
Long-term flexibility: Premiums and death benefit structures can often be adjusted over time.
Tax-advantaged growth: Cash value grows tax-deferred, and if structured properly, can be accessed tax-efficiently.
Supplemental retirement strategy: In certain cases, the policy can be used as an additional source of income later in life.
Estate planning tool: Provides liquidity and can help transfer wealth efficiently.
But there are important considerations:
Performance is tied to the market Fees and structure matter significantly
Requires active management and proper funding
Not appropriate for everyone
Bottom line: A VUL is not just “insurance”—it’s a long-term planning tool. When designed correctly, it can complement a broader financial strategy. When designed poorly, it can underperform expectations.
How These Fit Together
This isn’t about choosing one type over another—it’s about using the right combination.
A thoughtful plan might look like:
Group insurance as a baseline
Term insurance to cover income and major obligations
Permanent insurance (VUL) for long-term flexibility, tax strategy, and legacy planning
The Bigger Picture
The most common mistake we see is treating life insurance as a one-time decision.
In reality, it should evolve alongside your life:
Career changes
Growing families Increasing income
Shifting tax environments
Life insurance isn’t just about protection—it’s about making sure the people and plans you care about are supported, no matter what.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices.
Variable Universal Life Insurance/Variable Life Insurance policies are subject to substantial fees and charges. Policy values will fluctuate and are subject to market risk and to possible loss of principal. Guarantees are based on the claims paying ability of the issuer.
Securities and investment advisory services offered through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Pillar Wealth Partners
