Find the Right Type of Life Insurance for Your Family and Business

What Are the Most Common Life Insurance Policies?

What are the most common life insurance policies? Term life insurance and whole life insurance are two distinct types of life insurance. Term covers you for a set number of years. Whole life is designed to last for your lifetime, as long as premiums are paid as required. Term and whole life policies can also be used for specific purposes, such as key person, buy-sell agreement, estate planning, and NRI coverage.

This guide explains each type in plain words, with its limits. It also shows where a CPA’s view of cash flow and tax can matter.

The most common life insurance policies at a glance

Life insurance is a contract. When the insured dies, the insurer pays a death benefit to the beneficiary named in the policy, subject to the policy’s terms. A beneficiary is the person or entity the policy pays.

The first split to understand is time. Term life lasts for a set period. Whole life is permanent, which means it is designed to stay in force for life. Permanent coverage can also build cash value, which we explain below.

This guide covers term life, whole life, key person insurance, buy-sell agreement insurance, estate planning life insurance, and NRI life insurance. The right type depends on who needs protection and why. That is why the sections below group policies by purpose. Florida’s Department of Financial Services guide explains term and whole life, along with cash value, policy loans, and beneficiaries, in plain language (Florida life insurance consumer guide).

Term life insurance: coverage for a set period

Term life insurance pays a death benefit only if the insured dies during the term. Coverage ends when the term ends, unless the policy is renewed or converted under its own terms.

Families often use term coverage to replace income while children still depend on it. It can also match a mortgage or another debt with an end date. Choose a term that runs as long as the need does.

Premiums, term length, and any age-based change in premium are set by the policy. Read those terms in the policy form before you decide.

Term has no cash value. It does not build value over time the way permanent coverage can.

Florida law requires life insurance contracts to address errors in age or sex. If the insured’s age or sex was misstated, the amount payable is changed to the amount the premium paid would have purchased at the correct age or sex (Fla. Stat. § 627.456). Age drives the premium, so an error can change the benefit.

Whole life insurance: permanent coverage with a cash value component

Whole life insurance is designed to stay in force for the insured’s lifetime, as long as premiums are paid as required. Section 7702 of the Internal Revenue Code sets the tests a policy must pass to be treated as life insurance for federal tax purposes. In plain terms, the premiums paid and the cash value that can build up must stay within limits set by the statute (Internal Revenue Code § 7702).

Cash value is a value the policy builds over time. Your policy shows guaranteed values and non-guaranteed values separately, so read both. Where a policy pays dividends, those dividends are not guaranteed.

Policy loans and withdrawals can reduce the death benefit and the cash value. Florida law says a policy’s loan value is at least equal to the cash surrender value at the end of the current policy year. That loan rule does not apply to term policies (Fla. Stat. § 627.458).

Late premiums get some protection. Florida law requires a grace period of not less than 30 days, or not less than one month at the insurer’s option, to pay any premium after the first (Fla. Stat. § 627.453). Florida also requires most life policies to become incontestable after they have been in force for 2 years during the lifetime of the insured, except for nonpayment of premiums and certain listed provisions (Fla. Stat. § 627.455).

Key person and buy-sell agreement insurance for business owners

Key person insurance is a policy a business owns on an essential owner or employee, with the business as beneficiary. It can help the business cover financial loss from that person’s death. It does not prevent that loss.

Buy-sell agreement insurance funds a buyout of a deceased owner’s share under the agreement. That way, ownership moves under terms the owners already agreed to.

Florida law lets a business insure owners, officers, or key persons. The business must get written consent before the insurance is bought. The business may not retaliate against someone who refuses consent (Fla. Stat. § 627.404).

From a CPA’s view, cash flow, premium budget, business structure, agreement wording, and tax treatment should be reviewed together. Premiums are a real cash cost, so plan for them before the policy starts.

Ownership can also change the estate result. Under Treasury Regulation § 20.2042-1(c)(6), if a corporation owns a policy on a sole or controlling stockholder and proceeds are not payable to the corporation, the corporation’s ownership rights can be attributed to that stockholder, and a controlling stockholder is one who holds more than 50% of total voting power. Section 2042 includes in a decedent’s gross estate the proceeds of insurance on the decedent’s life that are payable to or for the benefit of the estate, as well as proceeds payable to other beneficiaries if the decedent held any incidents of ownership in the policy at death, whether exercisable alone or with another person (Internal Revenue Code § 2042).

Estate planning life insurance and NRI life insurance

Estate planning life insurance uses a death benefit to provide funds for settling an estate, making a bequest, or carrying out a family plan. Who owns the policy and who receives the benefit affects how it counts for estate tax.

Under federal law, proceeds payable to the executor are included in the gross estate. In plain terms, life insurance proceeds on the decedent’s life can be included in the gross estate if, at death, the decedent possessed any incidents of ownership that were exercisable either alone or in conjunction with any other person (Internal Revenue Code § 2042).

Income tax and estate tax are separate questions. Interest paid on proceeds left with the insurer is taxable (IRS guidance on life insurance proceeds). The IRS’s 2026 inflation adjustments (Rev. Proc. 2025-32) report a basic exclusion amount of $15,000,000 under IRC § 2010(c)(3) for U.S. citizens and domiciliaries.

NRI life insurance is designed for non-resident Indians and cross-border households. Residency, currency, and beneficiary location are reviewed case by case. For calendar year 2026, the first $194,000 of gifts to a spouse who is not a U.S. citizen is the annual gift tax exclusion for that type of gift, as set in the IRS 2026 inflation adjustments. Fully underwritten policies ask health questions, and issue may depend on insurability.

How to compare these policy types in plain terms

Term and whole life differ mainly in how long coverage lasts and whether cash value builds. The table below shows the main differences.

The NAIC Life Insurance Buyer’s Guide describes the differences between term and permanent coverage.

Read the policy form before deciding. Check the insurer’s name, the limitations and exclusions, and the renewability terms. The policy governs the coverage. A household may use more than one type, depending on its goal, budget, and time horizon.

Insurance is offered by a licensed agent, separately from the accounting practice of NR CPAs & Business Advisors. The firm’s CPA background informs the cash flow and tax questions.

Next step: book a coverage review

If you are considering these options, you can contact our office to schedule a coverage review. A coverage review gives you a clear first step.

Florida law says no one may act as an insurance agent unless currently licensed (Fla. Stat. § 626.112). If you want help matching a policy type to your household or business, call us today to set up a coverage review.

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