Term life insurance is the simplest and least expensive type of life insurance policy. A term life policy has only one function: to pay a specific lump sum to a beneficiary upon the death of the policy holder, if the policyholder dies within the term, or number of years, covered by the policy.

Universal life insurance offers a flexible premium to allow the policyholders to adjust the policy to their needs. Universal life insurance offers a death benefit, but also combines cash accumulation inside the policy to maintain a level premium for as long as the policy is in force. This cash value can be used to offset policy costs in later years, or may be accessed through policy loans or withdrawals by the policyholder. The cash values grow tax-deferred. Many Universal life policies have guarantees to help meet uncertainties of how long an individual might live. These guarantees can vary depending upon the amount of premium paid.

A whole life insurance policy is very similar to a universal life insurance policy, but will usually offer the strongest guarantees. The premiums on this policy are not flexible, but are consistent throughout the life of the policy. The whole life policy offers cash accumulation and withdrawal options similar to the universal life insurance policy.