When shopping for a new health insurance policy — or when your employer introduces a new health plan — you might wonder what certain health insurance terms mean.
In this guide, you’ll discover health insurance terminology for beginners and anyone who’s ever been confused about a policy, so you can make informed decisions.
Key Points
• Accident-only policies cover only injuries from accidents, not illnesses.
• Benefits refer to the health services covered by insurance plans.
• A claim is an itemized bill submitted to the insurance company for payment.
• Coinsurance is the percentage of costs the insured pays after the deductible.
• The out-of-pocket maximum sets the limit on annual healthcare expenses.
Top Health Insurance Terms to Know
Discover the health insurance definitions that can help you better utilize health insurance for you and your family.
Accident-Only Policies
These policies pay only in cases that were due to an accident or injury.
Benefits
These are the health care services covered by the insurance plan for an individual. Your health benefits might also be called a “benefits package.”
Claim
An itemized bill that shows all of the services and procedures that were provided to the member.
Coinsurance
This refers to the percentage of the medical charge you must pay out of your own pocket after meeting your deductible. The rest will be paid by your health insurance company. For instance, if you have a 15% coinsurance plan, you would pay 15% of each medical bill (after paying the full deductible), and the insurer would cover the rest.
Contract
In most cases, this means the insurance policy, which is a contract between the insurance company and the policyholder.
Copayment
The amount you pay out of pocket when you receive medical care or a prescription drug. A copayment is typically paid in person at the doctor’s office.
Deductible
This refers to the amount you must pay out of pocket before your insurance starts paying some of your health care expenses. The deductible resets at the beginning of the year or when you enroll in a new health insurance plan.
If your deductible is $2,000, your health insurance plan won’t cover any services until you have paid $2,000 out of pocket for the year. Someone with a high deductible and lots of medical costs could consider getting help in the form of medical loans, which are personal loans for medical and dental procedures.
If you are unable to work because of an illness or injury, the insurance company pays for lost wages. You’ll receive a portion of your income until you are able to return to work. Each policy defines what constitutes a “disability,” so you’ll need to meet those requirements and submit medical paperwork before receiving payment.
Health Insurance
Health insurance terminology 101: This is a contract that requires your health insurer to pay some or all of your health care costs in exchange for a premium.
Health Maintenance Organization (HMO)
An HMO is a health plan that provides health care services to members through a network of doctors, hospitals, and other health care providers.
HMOs are popular alternatives to traditional health care plans because they usually have lower-cost premiums while still offering a variety of services.
Health Savings Account (HSA)
This is pretax money you set aside to pay for qualified medical expenses. You and your employer may contribute.
One benefit of an HSA is that funds roll over if you don’t spend them by the end of the year.
Sometimes referred to as a fee-for-service plan, an indemnity plan allows you to go to any physician or provider you want, but requires that you pay for the services yourself and file claims in order to get reimbursed.
Mandated Benefits
This refers to the health care benefits that state or federal law say must be included in health care plans. Mandated health insurance benefit laws may require plans to cover substance abuse treatment or maternity services; cover treatment by providers like chiropractors, acupuncturists, and midwives; or include dependents and domestic partners.
Out-of-Pocket Maximum
This is when you seek out services from providers who aren’t in your HMO’s or PPO’s network. Usually, HMOs will only pay for care received within its network. If you’re in a PPO plan, you will have to pay more to receive services outside the PPO’s network.
Out-of-Network Services
This is when you seek out services from providers who aren’t in your HMO’s or PPO’s network. Usually, HMOs will only pay for care received within its network. If you’re in a PPO plan, you will have to pay more to receive services outside the PPO’s network.
Preexisting Condition
This health insurance term refers to a medical problem or illness you had before applying for health care coverage. If you have a preexisting condition, it’s a good idea to shop around and educate yourself when choosing an individual health plan.
Preferred Provider
This refers to a provider who has a contract with your health plan to provide services to you at a discount. If you have a favorite doctor, you might want to see if they are a preferred provider or “in network” for any new insurance plan.
When you’re looking to find a new physician, choosing a “preferred provider” found via the plan’s website will help keep medical costs down.
Your health insurance or plan may have preferred providers who are also “participating” providers. Participating providers can also have a contract in place with your health insurer, but you may have to pay more.
Preferred Provider Organization (PPO)
PPO plans provide more flexibility than HMOs when choosing a doctor or hospital. They also feature a provider network, but have fewer restrictions on seeing out-of-network providers.
PPO insurance will pay if you see a provider out of the network, though it may be at a lower rate.
This is the amount paid to the insurance company to obtain or maintain an insurance policy. Usually it’s a monthly fee.
Provider Network
This is a list of all the doctors, specialists, hospitals, and other providers who agree to provide medical care to the members of an HMO or PPO.
Waiting Period
This is the time an employer may make employees wait before they are eligible for coverage under the company’s insurance plan.
The Takeaway
Do you know your HMO from your PPO and HSA? Have you looked closely at copays, deductibles, and out-of-pocket maximums? Knowing health insurance terms can help you make an informed decision when looking at health insurance policies.
When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
While both ACH and checks have their upsides, ACH tends to be the quicker and more secure payment method. However, in your financial life, there will probably be times when one is a lot better suited to your needs than the other.
Here’s a detailed breakdown of ACH vs. check, the pros and cons of each, and how they stack up.
What Is ACH and How Does It Work?
An ACH transfer (named after the Automated Clearing House network) is an electronic banking transaction that is processed through the ACH network. The network is a major financial hub, made up of around 10,000 institutions. Through the ACH network it is possible to process the following transactions:
Businesses and consumers have the option of using ACH transfers to make direct payments (known as ACH debit transactions) or direct deposits (ACH credit transactions). Some financial institutions even make it possible to schedule and pay bills electronically via ACH transfers. You are probably familiar with ACH transactions when you set up autopay on an account, whether it’s a utility bill or your gym membership.
You may wonder how long ACH transfers take. Because they are electronic, ACH transfers can clear banks in a matter of a few business days as long as there are enough funds in the account. However, there are times where ACH transactions will take longer. This is especially common if a transaction is suspected to be fraud.
However, for something like a direct deposit of a paycheck, ACH can be quite quick. When the payment hits your checking account, it’s immediately available. You don’t have to run around with a paper check that needs to be deposited. That can make a big difference between getting paid by ACH vs. a check.
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Pros and Cons of ACH
Like any financial tool, ACH transfers have some advantages and disadvantages worth considering. Here’s a closer look at some important pros and cons.
Pros
Cons
• Free. Most, but not all, ACH transfers are free.
• Errors can be reversed. You can sometimes request a transaction reversal for ACH transfers if an error occurs.
• Simple and straightforward. Convenient form of payment allowing you to pay without cash.
• Secure. The digital nature of these payments can make them less likely to have funds stolen.
• Fees can apply. May need to pay a fee to expedite bill-pay services or to make a transfer to an outside bank.
• Slow timeline. Can take up to three days for a transfer to go through.
• Potential roadblocks. Daily transfer limits apply.
What Is a Check?
A check is a payment method that involves making a payment using a paper check that has the payment amount and the payee’s bank account information on it. Once someone writes a check, the recipient can cash it and receive the funds.
Pros and Cons of Using a Paper Check
While not as popular as in the past, checks are still one of the most basic and time-honored financial tools at your disposal. They allow you to move money around without paying a fee, and they are a secure way to do this. What’s more, checks create a paper trail with proof that funds have been received.
But they can wind up costing you, they can take longer than you might expect, and sadly, there are scams that prey upon those who use checks. Here are some of the pros and cons of using a check to make payments or to receive payments in chart form.
Pros
Cons
• No fees. Electronic payments can come with fees, but there are no fees for standard checks once you purchase them.
• Safe way to send money. Cash can be lost or stolen. If a check is lost or stolen, the person who finds it will have a hard time cashing it thanks to handy security features.
• Proof of payment. Checks have a paper trail confirming proof of payment.
• Check scams exist.Check scams can be dangerous and easy to fall for.
• Checks cost money. Typically, you don’t pay a fee when you use a check, but it costs money to buy checks, and depending on your situation, you might have to pay a fee to cash a check at some locations.
• Processing delays occur. Paying by cash, credit, or electronic transfer can usually occur more quickly than paying by check.
Here, a side-by-side comparison of ACH vs. checks. It’s important to note that both have their own unique set of advantages and disadvantages, but much of the choice about which to use will depend on your particular circumstances and preferences.
ACH
Check
• For the most part, ACH transfers are free unless a rush fee or a fee for transferring to an outside bank applies.
• It is sometimes possible to request a transaction reversal for ACH transfers if an error occurred.
• ACH payments are fairly simple and easy to conduct.
• ACH transfers can take a few days to clear.
• There are no fees associated with checks, but consumers do have to buy the checks to be able to use them.
• Checks offer a safe way to make payments, but there can be issues with scams and stolen checks.
• Checks provide a convenient paper trail that cash payments lack.
There’s no right or wrong answer when it comes to choosing a check over an ACH transfer. Both have unique advantages and disadvantages. Consider these scenarios:
• Because it’s possible to set up recurring ACH transfers, that can be a much more convenient option if someone wants to schedule ongoing automated payments such as rent or bills.
• Checks, which are very secure and convenient, may be a better fit for one-off payments such as paying the babysitter or a hairdresser.
As you see, the decision depends on what best suits your needs for a particular transaction.
The Takeaway
Both ACH transfers and checks offer benefits. They can be convenient, secure ways to transfer money, though ACH may be faster and safer. Which one is the “best” will often depend on the unique preferences of both parties involved in the transaction. You may well find yourself toggling between the two during your everyday financial life.
While you’re thinking about which kinds of payments work best for you, consider your banking options.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.
FAQ
Is an ACH payment a check?
No, ACH payments are an electronic transfer processed through the Automated Clearing House network, which is a network made up of around 10,000 financial institutions. A check is a different kind of payment, using a paper document and being processed in a different way.
Is ACH better than checks?
Not necessarily. ACH can be faster, cheaper, and more secure in certain scenarios, but both can be useful ways to make payments.
Is ACH cheaper than checks?
When it comes to check vs. ACH costs, ACH payments can be cheaper than checks in some cases, but not always. ACH payments are free, whereas consumers generally need to buy checks to use for payments. However, you may run into fees when doing certain ACH payments.
Is ACH safer than a check?
Both checks and ACH transfers are very secure, but ACH payments are known to be more secure, thanks to the extra layers of protection in place due to encryption that occur during the transfer. Both checks and ACH transfers do require that the identity of the recipient be verified before the transaction can complete. Fraud and mistakes can occur for both payment types.
About the author
Jacqueline DeMarco
Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.
Photo credit: iStock/bernardbodo
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet
Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.
See additional details at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
ACH return codes are generated when an ACH (Automated Clearing House) payment fails to process and therefore gets returned. ACH payments, which essentially transfer funds between financial institutions, can be a huge convenience. They allow you to set up automatic monthly bill pay and receive direct deposit of one’s paycheck, for instance. There are, however, likely to be times when a transaction doesn’t work as expected, perhaps due to incorrect coding or insufficient funds. ACH return codes indicate exactly what went wrong.
Here, you’ll learn about what ACH return codes are and what steps you can take to help complete this kind of banking transaction, especially if you are managing a business that relies upon them.
What Are ACH Return Codes?
First, know that ACH refers to the Automated Clearing House, a U.S. financial network that provides electronic transfers among banks and credit unions. If you receive your paycheck by direct deposit or set up bill pay from your checking account, you are using the ACH system. It’s considered a fast, secure, and simple way to move money.
ACH returns occur when an ACH payment can’t be completed.
There are a few reasons why these transactions aren’t successful, including:
• The originator (the entity who requested payment) provided inaccurate or incomplete payment information or data.
• The originator isn’t authorized to debit the client’s account with an ACH payment.
• There aren’t sufficient funds to complete the transaction.
The ACH return code alerts the parties involved so they know there’s an issue, whether a recurring automatic bill pay suddenly stopped or a one-time payment could not go through. The specific reason can then help the situation be remedied so the payment can hopefully be sent again properly.
Here’s an example to clarify this concept: Perhaps your wifi provider is authorized to withdraw payment monthly from your checking account. If the Originating Depository Financial Institution (ODFI; the wifi provider’s bank) or the Receiving Depository Financial Institution (RDFI; the entity receiving the payment request; aka your bank) isn’t able to transfer funds, a return code will be generated to explain exactly why the transaction wasn’t completed.
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*Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.30% APY as of 12/23/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 3/30/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.
How ACH Returns Work
If an ACH payment can’t be completed, as mentioned above, a specific return code will be generated. The person or business originating the payment request can then work to resolve the issue.
A few details to note about how ACH returns work:
• If an ACH return occurs due to insufficient funds, the consumer may be on the hook for an ACH return charge. It’s similar to when a check bounces; the end user pays a small fee; in this case, usually $2 to $5.
• Timing-wise, most ACH returns only take about two banking days, though a few of these ACH codes involve transactions that can take up to 60 days to process.
Common ACH Return Codes
There are 85 distinct ACH return codes. Here, you’ll learn about some of the most common ones. These return codes are typically received by the entity requesting payment and their bank.
Code: R01 Meaning: Insufficient funds (the account’s available balance isn’t sufficient to cover the funds transfer, similar to being in overdraft) What to do: The entity requesting payment can attempt the transaction again as a new transaction within 30 days of the original authorization date (up to two times), or contact the customer for an alternate payment method.
Code: R02 Meaning:Account closed (a once-active account has been closed). What to do: The entity requesting payment can ask the customer to correct their account information or provide a different bank account or form of payment to complete the transaction.
Code: R03 Meaning: No account exists or unable to locate account (even though the account number structure is valid, it doesn’t pass the check digit validation). What to do: The request’s originator should contact the customer to confirm their routing number, bank account number, and the name on the bank account. If this information differs from what was originally entered, they can submit a new payment with these new details. Or request another form of payment.
Code: R04 Meaning: Invalid account number. What to do: The entity requesting payment should check the account number, and retry the transaction. Or obtain the correct bank account number and submit a new payment with that account number.
Code: R05 Meaning: This transaction should have been processed as a consumer, not corporate, transaction. What to do: The request’s originator should check that you have used the right codes. They can contact the customer and ask for a new form of payment. In some cases, they may need to file an appeal with Nacha (the non-profit organization that manages the ACH network) for this kind of returned transaction.
Code: R06 Meaning: Returned at ODFI’s request (ODFI requested that the RDFI return the ACH entry), often because the transaction is believed to be fraudulent. What to do: The entity seeking payment should contact the ODFI to understand why the transaction was rejected, and then, depending on the response, resubmit or alter the request.
Code: R07 Meaning: The previous authorization for an ACH transaction was revoked by the customer. What to do: The originator of the request should suspend recurring payment schedules entered for this specific bank account to prevent additional transactions from being returned. Then they need to address the issue with the customer, and try to resolve the issue by getting a new form of payment or asking to debit a different bank account.
Code: R08 Meaning: The customer has issued a stop payment on the item. What to do: The entity requesting funds should contact the customer to resolve the issue, and then re-enter the returned transaction again with proper authorization from the customer. Or request a new form of payment.
Code: R09 Meaning: Due to uncollected funds, the originator can’t access enough money to cover the transaction. What to do: The originator should try the transaction again, and re-enter it as a new one within 30 days of the original authorization date (up to two times in 60 days).
Code: R10 Meaning: The customer advised this transaction is not authorized or is improper in some way. What to do: The entity requesting payment should check the details and authorization on the transaction to determine if an error was made. They can connect with the customer to determine why this code was triggered. If the details can be rectified, they can resubmit the transaction per ACH guidelines.
Code: R11 Meaning: An electronic check deposit was not executed correctly. What to do: The originator of the request can correct the underlying error and resubmit the corrected electronic deposit within 60 calendar days.
Code: R12 Meaning: The branch where the account is held was sold to another DFI (development financial institution). What to do: The entity making the request should obtain the customer’s new routing and bank account information, and submit a new transaction.
The following ACH return codes are less common than those mentioned previously, but still occur and are worth knowing. Here’s a look at what makes these codes tick:
Code: R13 Meaning: Invalid routing number provided. What to do: The request’s originator should get the correct routing number from the customer to use when resubmitting the request.
Code: R14 Meaning: The account was being managed by someone who is now deceased or can no longer continue overseeing the account (such as an account held for a minor or an incapacitated person). What to do: This is handled on a case-by-case basis; the request’s originator might try to contact the beneficiary or new representative for the account.
Code: R15 Meaning: Beneficiary or account holder is deceased. What to do: No further action can typically be taken.
Code: R16 Meaning: Account is frozen and funds are unavailable. What to do: The entity making the request should obtain a new payment form.
Code: R17 Meaning: Known as a “file record edit criteria” code, this indicates that there is a discrepancy in the file code, and the transaction cannot be processed. What to do: The fields causing the processing error need to be identified (typically by the originator of the request) in the addenda record information field of the return to complete the transaction.
Code: R20 Meaning: The receiving account is not a transaction account (aka, it’s an account against which transactions are prohibited or limited). What to do: The entity making the request can contact the customer, and request either the authorization to charge a different bank account or a new form of payment.
Code: R21 Meaning: The ACH file contains an invalid or incorrect company identification number. What to do: The originator of the request should double-check their information, or contact the company to obtain the correct information.
Code: R22 Meaning: The individual ID number is invalid. What to do: The entity making the request should check their information and resubmit, or contact the customer to obtain the correct information.
Code: R23 Meaning: The account holder or their bank is refusing to accept the transaction. What to do: The originator of the request can work with the customer to clear up the issue, or ask them to contact their bank to resolve it.
Code: R24 Meaning: Duplicate entry. What to do: If the transaction is indeed a duplicate, there’s nothing else to do. If it isn’t, the entity making the request can contact their customer or their customer’s bank to resolve the error.
Code: R29 Meaning: The customer has notified their bank that the requesting entity is not authorized to conduct this transaction. What to do: The originator of the request should suspend recurring payment schedules, and then address the issue with the customer. For instance, they could request new payment information from the customer or ask them to contact their bank to authorize the payment.
Code: R31 Meaning: This indicates that the receiving bank is requesting to return a certain kind of ACH transaction (a CCD, or cash concentration disbursement, and CTX, or corporate trade exchange, only). What to do: The entity making the request can reach out to their customer to resolve this issue or request a different form of payment.
Code: R33 Meaning: There is an issue with a transaction involving a converted check (known as XCK), such as when a damaged paper check is converted to an electronic version. What to do: The originator of the request should contact their customer for another payment form.
ACH return codes express the reason why an electronic Automated Clearing House payment could not be completed. Knowing what each code represents can help determine what the next steps should be to keep payments flowing smoothly or get refunds completed.
Need an easy way to receive payments when managing your personal banking?
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.
FAQ
What causes an ACH return?
ACH returns occur when an Automated Clearing House payment can’t be completed, perhaps due to inaccurate or incomplete information or insufficient funds. When this happens, an ACH return code is generated, providing a reason for the return.
What is ACH return fee?
When ACH returns occur, especially due to insufficient funds, a fee can be charged. It’s similar to how a bounced check incurs a fee. The amount is generally around $2 to $5.
How long does an ACH refund take?
Typically, an ACH refund takes about five to 10 banking days to occur, though some situations can take longer to resolve..
About the author
Jacqueline DeMarco
Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.
Photo credit: iStock/Delmaine Donson
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet
Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.
See additional details at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
No matter your age, it’s probably a good time to think about getting life insurance. It’s a key step in financial planning, so let’s get to know the two main types – term and permanent – so you can understand which is the right option to protect your loved ones.
First, a crash course in what insurance is: When you purchase a life insurance policy, you make recurring premium payments. Should you die while covered, your policy will pay a lump sum that you’ve selected to the beneficiaries you have designated. It’s an important way to know that if you weren’t around, working hard, your loved ones’ expenses (housing, food, medical care, tuition, etc.) would be covered.
Granted, no one wants to imagine leaving this earth, but buying life insurance can give you tremendous peace of mind.
Types of Life Insurance
Now that the basic concept is clear, let’s take a closer look at the two types of life insurance policies: term and permanent.
Term life insurance offers coverage for a certain amount of time, while permanent life insurance provides coverage for the policyholder’s whole life as long as premiums are paid. (These policies come in a variety of options. We’ll break those down for you in a moment.) There’s no right or wrong type; only a policy that is right for you and your needs. Figuring out which one will be easier once you understand the eight different kinds of life insurance and the needs they were designed to satisfy.
1. Term Life Insurance
Term life insurance, as the name suggests, protects a policyholder for a set amount of time. It pays a death benefit to beneficiaries if the insured person dies within that time frame. Term life insurance coverage usually ranges from 5 to 30 years. Typically, all payments and death benefits are fixed.
There are several reasons why a term life insurance policy might be right for you. Perhaps there is a specific, finite expense that you need to know is covered. For instance, if covering the years of a mortgage or college expenses for loved ones is a priority, term life insurance may make the most sense.
These policies can be helpful for young people too. If, say, you took out hefty student loans that are coming due and your parents co-signed, you might want to buy a life insurance policy. The lump sum could cover that debt in a worst-case scenario.
Another reason to consider term life insurance: It tends to be more affordable. If you don’t need lifelong coverage, a term policy might be an excellent choice that’s usually easier on your budget.
A few variables to be aware of:
• Term life insurance may be renewable, meaning its term can be extended. This is true “even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy,” according to the Insurance Information Institute. Renewal of a term policy will probably trigger a premium increase, so it’s important to do the math if you’re buying term insurance while thinking, “I’ll just extend it when it ends.”
• If you would be comfortable with your coverage declining over time (that is, the lump sum lowering), consider looking into the option known as decreasing term insurance.
💡 Quick Tip: Term life insurance coverage can range from $100K to $8 million. As your life changes, you can increase or decrease your coverage.
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2. Whole Life Insurance
Whole life insurance is the most common type of permanent life insurance, which protects policyholders for the duration of their lives.
As long as the premiums are paid, whole life insurance offers a guaranteed death benefit whenever the policyholder passes. In addition to this extended covered versus term life insurance, whole life policies have a cash value component that can grow over the policy’s life.
Here’s how this works: As a policyholder pays the premiums (these are typically fixed), a portion goes toward the cash value, which accumulates over time. We know the terminology used in explaining insurance can get a little complicated at times, so note there’s another way this may be described. You may hear this referred to as your insurance company paying dividends into your cash value account.
This cash value accrues on a tax-deferred basis, meaning you, the policyholder, won’t owe taxes on the earnings as long as the policy stays active. Also worth noting: If you buy this kind of life insurance and need cash, you can take out a loan (with interest being charged) against the policy or withdraw funds. If a loan is unpaid at the time of death, it will lower the death benefit for beneficiaries.
The cash value component and lifelong coverage of this type of life insurance can be pretty darn appealing. And it may be a good fit for funding a trust or supporting a loved one with a disability. However, buying a whole life policy can be pricey; it can be many multiples of the cost of term insurance. It’s definitely a balancing act to determine the coverage you’d like and the price you can pay.
For those who are not hurting in the area of finances, whole life can have another use. A policy can also be used to pay estate taxes for the wealthy. For individuals who have estates that exceed the current estate tax exemption (IRS guideline for 2024) of 13.6 million, the policy can pay the estate taxes when the policyholder dies.
3. Universal Life Insurance
Who doesn’t love having freedom of choice? If you like the kind of protection that a permanent policy offers, there are still more varieties to consider. Let’s zoom in on universal life insurance, which may provide more flexibility than a whole life policy. The cash account that’s connected to your policy typically earns interest, similar to that of a money market. While that may not be a huge plus at this moment, you will probably have your life insurance for a long time, and that interest could really kick in.
What’s more, as the cash value ratchets up, you may be able to alter your premiums. You can put some of the moolah in your cash account towards your monthly payments, which in some situations can really come in handy.
This kind of policy is also sometimes called adjustable life insurance, because you can decide to raise the benefit (the lump sum that goes to your beneficiaries) down the road, provided you pass a medical exam.
4. Variable Life Insurance
Do you have an interest in finance and watch the market pretty closely? We hear you. Variable life insurance could be the right kind of permanent policy for you. In this case, the cash value account can be invested in stocks, bonds, and money market funds. That gives you a good, broad selection and plenty of opportunity to grow your funds more quickly. However, you are going to have more risk this way; if you put your money in a stock that fizzles, you’re going to feel it, and not in a good way. Some policies may guarantee a minimum death benefit, even if the investments are not performing well.
This volatility can play out in other ways. If your investments are performing really well, you can direct some of the proceeds to pay the premiums. But if they are slumping, you might have to increase your premium payment amounts to ensure that the policy’s cash value portion doesn’t fall below the minimum.**
This kind of variable life insurance policy really suits a person who wants a broader range of investment options for the policy’s cash value component. While returns are not guaranteed, the greater range of investments may yield better long-term returns than a whole life insurance policy will.
5. Variable Universal Life Insurance
Variable universal life insurance is another type of a permanent policy, but it’s as flexible as an acrobat. If you like to tinker and tweak things, this may be ideal. Just as the name suggests, it merges some of the most desirable features of variable and universal plans. How precisely does that shake out for you, the potential policyholder? For the cash account aspect of your policy, you have all the rewards (and possible risks) of a variable life insurance policy that you just learned about above. You have a wide array of ways to grow your money, which puts you in control.
The features that are borrowed from the universal life model are the ability to potentially change the death benefit amount. You can also adjust the premium payments. If your cash account is soaring, you can use that money towards your monthly costs…sweet! It’s a nice bonus, especially if funds are tight.
6. Indexed Universal Life Insurance
This is another type of permanent life insurance with a death benefit for your beneficiaries as well as a cash account. You may see it called “IUL.”
In this instance, the cash account earns interest based on how a stock-market index performs. For instance, the money that accrues might be linked to the S&P (Standard & Poor’s) 500 composite price index, which follows the shifts of the 500 biggest companies in America. These policies may offer a minimum guaranteed rate of return, which can be reassuring.
On the other hand, there may be a cap on how high the returns can go. A IUL insurance plan may be a good fit if you are comfortable with more risk than a fixed universal life policy, but don’t want the risk of a variable universal life insurance product.
7. Guaranteed or Simplified Issue Life Insurance
With most life insurance policies, some form of medical underwriting is required. “Underwriting” can be one of those mysterious insurance terms that is often used without explanation. Here’s one aspect of this that you should know about.
Part of the approval process for underwritten policies involves using information from exams, blood tests, and medical history to determine the applicant’s health status, which in turn contributes to the calculated monthly costs of a policy. Underwriting serves an important purpose: It helps policyholders pay premiums that coincide with their health status. If you work hard at staying in excellent health, you are likely to be rewarded for that with lower monthly payments.
However, sometimes insurance buyers don’t want to go through that process. Maybe they have health issues. Or perhaps they don’t want to wait the 45 or 60 days that underwriting often requires before a policy can be issued. With guaranteed or simplified issue life insurance, the steps are streamlined. Applicants may not have to take a medical exam to qualify and approvals come faster.
These policies tend to have lower death benefits (think $10,000, $50,000, or perhaps $250,000 at the very high end) than the other types of life insurance we’ve described. Less medical underwriting also means policies tend to be more expensive. Who might be interested in this kind of insurance? It may be a good option for someone who is older (say, 45-plus), has an underlying medical condition that would usually mean higher insurance rates, or has been rejected for another form of insurance. The coverage may suit the needs of someone looking for insurance really quickly, like the uninsured people who, during the COVID-19 pandemic, wanted to sign up ASAP.
One point to be aware of: Many of these policies have what’s called a graded benefit or a waiting period. This usually means that the beneficiaries only receive the full value of the policy if the insured has had it for over two years. If the policyholder were to die before that time, the payout would be less — perhaps just the value of the premiums that had been paid.
Of the two kinds we’ve mentioned, guaranteed is usually the easiest to qualify for (as the name suggests) but costs somewhat more than the simplified issue variety, which tends to have a few more constraints. You might be deemed past the age they insure or a medical condition might disqualify you.
Worth noting: You may hear these life insurance policies are known as final expense life insurance or burial insurance. As with any simplified issue or guaranteed issue life insurance policies, no medical exam is required. These plans typically have a small death benefit (up to $50,000 in many cases) that is designed to cover funeral costs, medical bills, and perhaps credit card debt at the end of life.
8. Group Life Insurance
Group life insurance is often not something you go out and buy. Typically, it’s a policy that’s offered to you as a benefit by an employer, a trade union, or other organization. If it’s not free, it is usually offered at a low cost (deducted from your payroll), and a higher amount may be available at an affordable rate. Since an employer or entity is buying the coverage for many people at once, there are savings that are passed along to you.
That said, the amount of coverage is likely to be low, perhaps between $20,000 and $50,000, or one or two times your annual salary. Medical exams are usually not required, and the group life insurance will probably be a term rather than permanent policy,
A couple of additional points to note:
• There may be a waiting period before you are eligible for the insurance. For instance, your employer might stipulate that you have to be a member of the team for a number of months before you can access this benefit.
• If you leave your job or the group providing coverage, your policy is likely to expire. You may have the option to convert it to an individual plan at a higher premium, if you desire.
Deciding Which Life Insurance Is Best for You
So many factors go into creating that “Eureka!” moment in which you land on the right life insurance policy for you. Your age, health, budget, and particular needs play into that decision.
If you need life insurance only for a certain amount of time, you may want to select a term life insurance policy that dovetails with your needs. Covering a child’s college and postgraduate years is a common scenario. Another is taking out a policy that lasts until your mortgage is paid off, to know your partner would be protected.
A term life insurance policy may also be a good fit for someone who has a limited budget but needs a substantial amount of coverage. Since term policies have a specific coverage window, they are often the more affordable option.
For someone who needs coverage for life and wants a cash accumulation feature, a permanent policy such as whole life insurance might be worth considering. Not only will this policy stay in place for life (as long as the premiums are paid), but the cash value element allows use of the funds to pay premiums or any other purpose.
Permanent life insurance lets you know that, whenever you pass on, funds will be there for your dependents. It can be a great option if you have, say, a loved one who can’t live independently, and you want to know they will have financial coverage. Whole life insurance is typically more expensive than term life insurance, but the premium remains the same for the insured’s life.
In terms of when to buy life insurance, here are a few points to keep in mind:
• It’s best to apply when you’re young and healthy so you can receive the best rate available.
• Typically, major life events signal people to buy life insurance. These are moments when you realize someone else is depending on you (and, not to sound crass, your income). It could be when you marry or have a child. It could be when you realize a relative will need long-term caregiving.
• Even if you are older or have underlying health conditions, there are options available to you. They may not give as high an amount of coverage as other life insurance policies, but they can offer a moderate benefit amount and give you a degree of peace of mind.
💡 Quick Tip: With life insurance, one size does not fit all. Policies can and should be tailored to fit your specific needs.
The Takeaway
Picking out the right life insurance policy can seem complicated, but in truth, the number of choices just reflects how easy it can be to get the right coverage for your needs. There’s truly something for everyone, regardless of your age or budget. Whether you opt for term, permanent, group, or guaranteed issue, you can get the peace of mind and protection that all insurance plans bring.
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About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
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