# #4.1: Types of life insurance

*This is post 5 of 10 in my* [*cryonics signup guide*](https://www.lesswrong.com/s/weBHYgBXg9thEQNEe)*, and the second of five posts on life insurance.*

* * *

In this post, I'll cover the different types of life insurance policies you might want to use to fund your cryopreservation. This is the most complicated part of this entire sequence and it's taken me many, many hours of confusion to reach even the tenuous understanding I'm presenting here. Please bear with me and let me know if you spot any errors or have any questions.

Note that in addition to being labyrinthine, the life insurance landscape changes fairly often, such that the options that were available to you when you signed up for cryonics ten years ago might no longer be offered. They're always adding new types of life insurance and getting rid of old ones, and the name of a policy doesn't always tell you the relevant information about it.

Getting oriented
================

Life insurance policy types vary along several major axes. Some cover you forever, while others expire; some are more expensive than others; some are more reliable and others are more flexible.

Here is the basic information in table form. You may want to refer back to this if you get confused while reading.

|     | ** Duration** | **Premiums** | **Death benefit** | **Cash value** | ** Interest rates** | ** Price** |
| --- | --- | --- | --- | --- | --- | --- |
| ** Term Life** | Fixed term | Fixed | Fixed | No  | N/A | `$` |
| ** Whole Life** | Permanent | Fixed | Fixed | Yes | Guaranteed | `$$$$$` |
| ** Universal Life** | Permanent | Adjustable | Adjustable | Yes | Determined by the carrier; variable | `$$$$` |
| **Guaranteed Universal Life** | Permanent | Fixed | Fixed | No  | Guaranteed | `$$` |
| **Indexed Universal Life** | Permanent | Adjustable | Adjustable | Yes | Indexed on S&P 500, capped | `$$$` |

For maximum hope of successful communication, I've approached this question from two angles – first I'll talk about the ways in which policies differ from one another, then I'll give a summary of each type of policy. 

Properties of an ideal cryonics life insurance policy
=====================================================

Before we get into what types of life insurance actually exist, I think it's useful to think about what a life insurance policy tailored specifically for cryonics would look like. Then we can find the real-world policy that corresponds most closely to the ideal.

Permanence
----------

You want coverage until you die, because otherwise there's no point. This means that you should steer away from term policies, unless you expect to be able to self-fund in the future.

Flexibility
-----------

Your death benefit needs to cover the full amount of your cryopreservation at the time when you die. Since you can't know exactly when you will die or how much cryonics will cost at that time, ideally you would get the amount of coverage *currently* needed to cover your preservation, and your death benefit would keep pace with inflation as time went on. That is, essentially, it would pay out a certain amount of purchasing power, rather than a certain dollar amount.

If you're signing up for neuropreservation, your policy would ideally have the flexibility to switch to whole-body built in. This means your death benefit would be adjustable – for example, you could just pay higher premiums if you wanted to increase the death benefit amount.

Returns
-------

Ideally the money you pay in premiums would earn interest for you. And of course, all else equal you want the price to be as low as possible.

TL;DR
-----

An ideal policy for our purposes would:

*   Be cheap, permanent, and flexible
*   Have a death benefit that grows with inflation
*   Earn interest for you

Axes of variance
================

Fixed term vs permanent insurance
---------------------------------

All of the insurance agents I've talked to have recommended permanent insurance for cryonics, but I know at least two people who have chosen term insurance, so it's worth looking at both.

**Term insurance**

As the name implies, term insurance covers you for a fixed amount of time. You can get term insurance for up to 30 years. Generally, once the term ends, your coverage ends.

Term insurance is the cheapest option by a factor of ~two, which is the primary reason someone might choose it. However, term insurance is given to you basically *on the condition* that it's very unlikely that you'll die within the term – which is how they can afford to sell it so cheap. According to one agent I talked to, only 3% of term policies result in a death claim.

**Permanent insurance**

Again, the name is pretty self-explanatory – permanent insurance covers you until you die, whenever that may be. Since there are several subtypes of permanent insurance, there are fewer broad claims I can make here. But I can say that permanent insurance is more expensive than term insurance, and that there are more options available.

**Which one should I choose?**

Permanent insurance is overall a far better choice for cryonics, because the death benefit will pay out no matter what age you are when you die. Gordon Worley gives a good summary of term insurance:

> \[U\]sing term life insurance is cheaper but riskier, since you might outlive the term and be too old to purchase additional life insurance at a reasonable rate when you need it, effectively canceling your ability to pay for cryonics unless you have in the intervening time managed to do financially well enough to self-fund.

However, if you're signing up for cryonics but are really strapped for cash, you might want to take out a term policy just in case you die soon, then switch to a permanent policy once you're more financially secure. If you're able to make the switch within ~5 years, or before the age of ~35, you should still be able to get permanent life insurance at a reasonable rate.

Cash value
----------

From [Policygenius](https://www.policygenius.com/life-insurance/whole-life-insurance-vs-universal-life-insurance-vs-guaranteed-universal/):

> Whole life insurance and universal life insurance both have a cash-value component. Each month, a certain portion of the premium you pay to keep the policy active goes into a tax-deferred savings account, known as the cash value of the policy. (The exact amount that goes into savings is determined by your individual policy.) The policy's cash value grows over time.
> 
> Depending on your policy and how much cash value it’s built up, you may be able to use the cash value to pay your premiums, or take out a low-interest loan against your policy. However, both of these options come with some risk: if you die before you repay your loan, the amount you owe will be deducted from your death benefit. And if you use up all of your policy’s cash value to pay your premiums, your policy will lapse.

Some policies allow you to choose how your excess premiums are invested, while others invest them in the S&P 500 or just guarantee you a certain rate of return.

When using life insurance to fund cryopreservation, you should just not touch the cash value at all. But it's good to have it anyway because:

*   If you surrender the policy because you can't afford it anymore, you can get the accumulated cash value back from it (less surrender charges and taxes).
*   In some cases, the cash value is added to the original death benefit amount, and both pay out to your beneficiary when you die. This depends on your specific policy rather than just on your policy type; for more detail on level vs increasing death benefits, see [Investopedia's explanation](https://www.investopedia.com/articles/wealth-management/032516/life-insurance-increasing-death-benefit.asp).

Guaranteed vs non-guaranteed insurance
--------------------------------------

**Guaranteed**

What parts of the policy are guaranteed?

*   **Premiums** are locked in at time of buying and guaranteed to never change (either forever or until a certain very old age like 120)
*   **Death benefit** is guaranteed to pay out in full
*   **Interest rates** (if applicable) are fixed at a rate set by the insurance company

Guaranteed insurance provides peace of mind, but it also lacks flexibility, and interest rates (when applicable) are relatively low.

**Non-guaranteed**

Why would you choose something with the name non-guaranteed? Basically, because while you're losing certainty, you're gaining flexibility. Also, exposing yourself to more risk means leaving open the possibility of higher gains – the projected returns on non-guaranteed policies are significantly higher than those for guaranteed policies.

With non-guaranteed policies, **premiums** are dependent on market performance, so if the market outperforms projections, you won't have to pay as much into the policy as initially quoted. Conversely, if the market tanks hard for a long time, your premiums can rise basically without bound. This is why you'll be cautioned that "Non-guaranteed coverage has an inherent risk of becoming unaffordable, in which case you might find yourself unable to secure *any* life insurance."

Types of insurance
==================

Term insurance
--------------

Term insurance is non-permanent; it lasts for 10, 20, or 30 years and is very unlikely to cover you until death.

**Premiums**

Term insurance is the cheapest option by a factor of two or more, but only if you're statistically highly unlikely to die within the term. If you're closer to death, term premiums become exorbitant. Term insurance is also brittle – your policy will lapse if you miss a single payment.

**Death benefit**

Term insurance pays out a fixed death benefit. There is no cash accumulation or death benefit growth.

Whole life insurance
--------------------

Whole life is a guaranteed, permanent policy with cash value accumulation. It is expensive.

**Premiums**

Whole life is the most expensive type of policy. Whole life premiums can be up to 5x as expensive as term premiums and 2x as expensive as IUL premiums. However, they are also guaranteed to never change for as long as you live.

**Cash value**

Whole life has a cash value component. Excess premiums are invested at the insurance company’s discretion, usually with returns of about 2-6% per year.

**Death benefit**

Your death benefit is guaranteed to pay out in full. It increases somewhat over time; for me, the dollar amount would ~double between now and the time I'm 90.

**Payment options (limited vs lifetime)**

There are two payment options for whole life insurance: limited payment and lifetime payment. The differences between the two are quite straightforward.

*   **Lifetime payment** is cheaper per month, but you have to pay every month for the rest of your life.
*   **Limited payment** is more expensive per month, but after a fixed time, you will have entirely paid off your policy and you'll get to have it forever without paying anymore.

Assuming you're young and unlikely to die soon, choosing a 20-year limited payment ('20 pay') will result in a lower cumulative out-of-pocket cost *before inflation.* (For me it's lower even taking into account 2% inflation per year, but I'm quite young so YMMV). Conversely, if you, like my mom, are signing up when there are only about 20 years left in your expected lifespan, choosing 20 pay would be stupid because it would just be more expensive with no upsides.

**TL;DR**

*   Expensive but guaranteed
*   Static premiums
*   Death benefit may grow a bit
*   Cash value invested with 2-6% returns
*   Option to pay off the policy in full in 10 or 20 years

Indexed universal life insurance (IUL)
--------------------------------------

IUL is a non-guaranteed, permanent policy with cash value accumulation. It is tied to the performance of the S&P 500.

**Premiums**

IUL is a relatively cheap type of permanent policy. Premiums are calculated based on the current crediting rate (~6% at time of writing), but you have to rerun policy illustrations every 5 to 10 years to check if the policy is underperforming. If interest rates decline, your premiums may rise, and in the worst case, your death benefit may drop below adequate coverage. On the other hand, if interest rates rise, your premiums may drop and you could potentially stop having to pay at all.

IUL premiums are also flexible. You can pay more into the policy if you want to increase the death benefit, or you can miss months and let the policy pay for itself out of the accumulated cash value.

**Cash value**

IUL has a cash value component. Premiums are invested in the S&P 500, and the interest you earn goes toward reducing your premiums, with the excess amount (after funding the cash value and the insurance company’s cut) going to increase the growth of the cash value.

Performance is capped – meaning that there's a limit on how high your returns can be, but you're also protected from risk. The connection to S&P 500 is tax-free and credit-protected.

**Death benefit**

The death benefit in IUL policies is flexible – you can adjust it up or down (within limits) by paying higher or lower premiums. It also grows over time – the accumulated cash value, if left untouched, is added to the death benefit, such that the payout upon your death is \[the initial death benefit\] + \[the accumulated cash value\].

In my case, with reasonable interest rate assumptions, I was able to get the death benefit to keep pace with inflation (in expectation) by paying a bit extra per month.

**TL;DR**

*   Relatively cheap and risky
*   Tied to S&P 500
*   Pricing based on current interest-rate assumptions
*   Flexible premiums
*   Flexible and growing death benefit

Universal life insurance (UL)
-----------------------------

UL is just like IUL except worse, because it's more expensive and your cash value disappears when you die rather than being paid out to your beneficiary. Another difference is that your premiums are invested at the insurance company's discretion rather than just being invested in the S&P 500.

This section is shorter than the other ones because no agent ever recommended that I consider UL, so I didn't put as much time into understanding it. I did talk to [someone](https://www.lesswrong.com/posts/LuTpsuv2Ti7cii8Y6/if-you-are-signed-up-for-cryonics-with-life-insurance-how?commentId=LMYGdvnoFyqR7Rwfe) who used a UL policy to fund his cryopreservation, but he got that policy years ago and the landscape has changed since then; the carrier in question doesn't even offer UL anymore.

Guaranteed universal life insurance (GUL)
-----------------------------------------

GUL is a guaranteed, permanent policy with no cash accumulation. You can think of it either as a cheaper whole life policy without cash accumulation, or as a term policy that lasts until a certain age (or until death) rather than for a certain amount of time.

**Premiums**

GUL is the cheapest type of permanent insurance. Your premiums are fixed at the time of buying and guaranteed not to change until a certain age (e.g. 90 or 121), at which point you'll likely already be dead.

**Death benefit**

You have coverage as long as you pay your premiums. Since there's no cash value, there’s nothing to support the death benefit if you stop paying your premiums, so the policy is brittle. Your death benefit is guaranteed not to decrease, but it will also never increase.

**TL;DR**

*   Cheap and secure
*   No cash value or death benefit growth
*   Basically a term policy that lasts until age 90 or later

Choosing a policy
=================

The decision about what kind of life insurance to buy ultimately comes down to whether you care most about reliability, flexibility, or budget. It also depends on your personal insurability. 

Why I chose IUL
---------------

When I started the process, I thought I cared most about reliability, and I was leaning towards whole life. But as I gradually considered more angles, and especially when I thought about the expected amount of inflation between now and the end of my natural lifespan, flexibility and higher expected cash accumulation began to sound a lot more valuable to me.

A lot of people and a lot of websites played up the risks of IUL to me. But I looked at the illustrations, and I looked at historical interest rates, and I think the risks were usually overstated. Yes, the risks are there, but I think they're sufficiently unlikely that the policy is overall a good bet. In addition, though I don't really understand The Economy, it seems to me that if the market tanks hard enough that my IUL policy lapses, cryonics providers are going to be in pretty big trouble anyway.

My recommendations
------------------

Here are my general recommendations, with the disclaimer that I am a layperson just trying to figure things out from Google and a couple hours of talking to insurance agents. Also maybe people without licenses aren't allowed to give advice on this kind of thing, so, um, this is not advice.

**If you’re price-sensitive and expect to remain so:**

*   Go for a permanent insurance option with low premiums (either GUL or IUL), and get it now, before age and poor health make your premiums rise.

**If you're currently price-sensitive but will be able to save a few hundred thousand dollars in the next decade:**

*   Get term insurance now so that you can pay the lowest premiums but still be covered just in case you die in the next 20 (or 30) years. At the end of the term, you'll have enough money to cover your preservation in full, at which point you should self-fund with a trust.
    *   (See [this comment](https://www.lesswrong.com/s/weBHYgBXg9thEQNEe/p/NPDSB3WEEAb8Swuyc?commentId=gZkw4nnJwGvCxEbJs) for my reservations about this option.)

**If you just want to get the best thing:**

*   If it's not too expensive given your risk profile, I recommend IUL, because I think the flexibility makes it a good fit for cryonics.

**If you're old:**

*   If you’re around retirement age, your premiums are going to be very high. Hopefully you've accumulated enough assets by that age to self-fund. But if you can't, the best life insurance option is probably GUL, because the premiums will be the most affordable, and you don't need as much built-in flexibility if you're closer to the end of your lifespan.

Obviously I haven't covered every possible scenario, but I hope that you now have enough context to be able to make an informed decision about what's best for you. 

As always, feel free to ask me questions about any of this. I can't promise to be able to answer all of them due to my tenuous grasp on economics as a whole, but I do think that even with that deficit, I'm more equipped to answer questions about the life-insurance-for-cryonics landscape than almost anyone.