Life insurance is an important component of wealth management and financial planning. Life insurance is designed to lessen the financial burden on loved ones in the event of a policy holder’s death. Life insurance typically is cheaper to purchase when someone is young and gets more expensive as a person ages. Health history, life choices (like smoking) and additional factors play key roles in determining the cost of a policy, according to the Office of the Insurance Commissioner of Washington State.

Life insurance policies are not all the same, and generally are categorized as term life insurance and permanent life insurance. With term life insurance, a person gets coverage for a defined length of time. If the insured dies during that time, money is paid to the person’s beneficiaries. When the term expires, no money is paid out and the person must get new coverage or go without life insurance. With a permanent life insurance policy, the coverage is lifelong and also includes a “cash value” component that can help with other financial objectives, such as saving for retirement. A deep dive into life insurance can help consumers determine which policy is best for them.

Term life insurance

This type of policy is sold in periods of one, five, 10, 15, 20, 25, or 30 years. Coverage amounts vary and people buy term life insurance for a length long enough to cover their prime working years, according to NerdWallet. This is often the least expensive life insurance product, but if a person outlives the policy, beneficiaries won’t receive a payout.

Permanent life insurance

Permanent life insurance is designed to cover a person’s entire life. The cash value component grows over time and can be borrowed against to pay for various needs. There are specific types of permanent life insurance.

• Whole life insurance: Whole life insurance will last a person’s entire life if premiums are maintained. In general, premiums stay the same and the insured gets the guaranteed rate of return on the policy’s cash value. The death benefit also will not change. Premiums are more expensive than term life, so this is best for people who want a basic permanent policy who can afford the higher premiums.

• Universal life insurance: This coverage is cheaper than whole life insurance, but still more expensive than term life. With this type of policy, the insured can raise or lower the amount they pay within the limits of the policy. However, premiums typically increase over time, and individuals may subtract these increased costs against their cash value account component or death benefit. That cash value component grows based on market interest rates, says NerdWallet, and is not guaranteed.

• Variable universal life insurance: This type of insurance allows the cash value component to be invested in stocks, bonds and other investment products. Premiums are flexible, but a higher risk tolerance is necessary. While there is potential for greater growth, there also is the risk that comes with investing these funds, says Guardian.

• Indexed universal life insurance: Balancing risk with reward, an indexed universal life insurance policy can have the cash value growth linked to the performance of a stock market index like the S&P 500. Guardian says these policies use downside protection and upside caps. This means that during a bad market year, the insured’s cash value will not decline, but in a good year, the cash value won’t grow as much as the index itself. This policy is good for people who want to invest their money but risk little.

• Burial/final expense insurance: This is a very small policy designed to cover the costs of final expenses, but may not qualify for other life insurance. The death benefit is guaranteed but is often limited to between $5,000 and $25,000. Since a medical exam is not needed, it is an option for seniors and those with preexisting conditions.

Individuals can explore various life insurance policy options to provide peace of mind that beneficiaries are provided for in the event of their death.