While you should enjoy all that life has to offer, it is important to plan for what will happen when you die. If you have dependents who rely on your income, you probably need life insurance. However, choosing the right life insurance policy for your family can be challenging. If you’re not sure where to start, you’ve come to the right place.
In this guide to buying life insurance, we’ll cover the different types of life insurance, how to calculate how much life insurance you need, and how to compare companies to find the best life insurance for your needs. We’ll also provide an overview of our favorite life insurance providers so you can choose the best life insurance for your needs.
Types of Life Insurance
To choose life insurance, you must first determine what type of life insurance you need. There are two general types to consider: term and permanent.
Term Life Insurance
Term life insurance provides temporary cover for a fixed period of time, usually between 10 and 30 years (some companies, such as Protective, offer terms of up to 40 years). If you die during the term of the policy, your beneficiaries will receive a payout. If you survive the policy expiration, you will not receive any money from your insurance company unless you have a premium refund policy.
Term life insurance is designed to provide money to your dependents when they need it most – during your income, raising children, saving for college, paying off your mortgage. Although term life insurance does not provide a permanent death benefit, it is sufficient for most people’s needs and costs significantly less than permanent life insurance. While rates will vary based on your age, gender, health, policy choice and other factors, our research found that a healthy 30-year-old woman would pay an average life insurance cost of about $25 per month for a 30-year, $500,000 policy.
Permanent Life Insurance
Unlike term life insurance, permanent life insurance is designed to last a lifetime and provide your beneficiaries with a death benefit no matter when you die, as long as your premiums are paid. There are several different types of permanent life insurance, but most have a cash value element that can be withdrawn or borrowed while you are still alive.
Whole Life Insurance: Whole life insurance has a fixed premium and a guaranteed death benefit. Whole life insurance can cost up to 10 times the premium for a term policy with the same death benefit.
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It is best for individuals with lifetime dependents or estate planning needs.
Universal Life Insurance: Universal life insurance includes flexible premiums and an adjustable death benefit along with an interest-bearing cash value component. It’s similar to whole life insurance but has fewer guarantees and is best for people who need more flexibility. Variable life insurance and unit life insurance are usually types of universal life insurance. In both cases, your cash value fluctuates with market performance.
Final Expense Insurance: Also known as funeral insurance, final expense insurance is a type of whole life insurance with a small death benefit (usually $40,000 or less). It is intended for elderly people with health problems and does not require a medical examination.
How to Choose the Best Life Insurance
In order to choose the best life insurance company, you must first understand what you need. You can then narrow down your options to companies that offer the coverage you’re looking for.
Find out What You Need
How much coverage do you need? To calculate how much life insurance you need, start with the income you generate for your dependents, including workplace benefits and any services you provide that they would need to replace. Multiply the result by the number of years you need coverage, adjusted for inflation and subtract any Social Security benefits you expect. Add money to your children’s college needs or your spouse’s retirement as you see fit.
How long do you need coverage for? You should plan for a policy that will cover you until you retire, until you pay off your debts and have enough savings to depend on for your family, or until your family members are self-sufficient.
How Much Life Insurance Can You Afford? You may have to cut back on other areas of your budget to get a life insurance policy that fits your needs, or you may have to compromise on the type of policy you get. Look at your other expenses and determine what is possible to spend each month. If you want permanent life insurance coverage, consider supplementing with a term policy to get the death benefit you need at a price you can afford.
What policy riders or features are important to you? Life insurance add-ons are a way to get more benefits from your policy. For example, some riders allow you to access part of the death benefit while you’re still alive if you need it for health-related expenses. Others allow you to stop premium payments if you become disabled. When purchasing a term policy, you should also decide whether you want to be able to convert the policy to permanent. Some riders may be included while others may be extra.
Compare Life Insurance Companies
Check the financial strength: To ensure that the company you choose is financially stable enough to pay you death benefits in the future, consider a financial strength rating from an independent credit rating agency such as AM Best.
Customer Complaint Review: Look up the National Association of Insurance Commissioners (NAIC) company-by-company complaint index, which shows whether a company has received a below- or above-average number of complaints compared to other companies. A complaint index of less than 1.00 is ideal – the lower the better. You can also look at customer reviews on third-party sites such as Trustpilot for patterns of complaints.
Assess customer satisfaction: Check company ratings with J.D.’s latest American Individual Life Insurance Study. Power, which measures customer satisfaction in various areas.
Consider the types of policies available: Narrow down your options to companies that offer the type of coverage you want in the amount you need.
Consider Riders: Once you’ve determined which riders you want, check how much they cost with each company and whether any are included with no upfront fees. For example, some companies are much better at incorporating life benefits into their policies than others.
Consider the claims process: Many companies offer same-day issue policies that don’t require an exam, especially term and final expense policies. But it might be beneficial for you to take the test if you are in good health. The cost of life insurance largely depends on your health, and you may not qualify for the highest health classification with no-exam life insurance.
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The Best Life Insurance Companies
Protective: Protective is our top pick for the best life insurance company for young adults, offering cheap cover with online quotes and terms up to 40 years. Protective offers term life policies that are convertible, but the cheapest rates we’ve seen are for its non-convertible term life policies. The company also offers whole and universal life insurance and has an A+ (Superior) financial strength rating with AM Best, but according to J.D. Power is below average.
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Mutual of Omaha: Mutual of Omaha is one of the best life insurance companies with living benefits, offering accelerated death benefits with no upfront cost on most policies. The company sells term, whole and universal life insurance along with accidental death insurance. Mutual of Omaha has an A+ (Superior) financial strength rating with AM Best and is ranked third out of 22 companies in customer satisfaction by J.D. Power.
Guardian: Guardian offers term, whole and universal life insurance with online quotes for term cover. Term policies are convertible and you can even convert your policy to a permanent policy with long-term care coverage (if you purchase the Care Conversion Option with your policy). Guardian has an A++ (Superior) financial strength rating with AM Best and an above average customer satisfaction rating with J.D. Power.
Northwestern Mutual: The largest life insurance provider by market share, Northwestern Mutual offers term, whole, universal and variable universal life insurance.
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The company has been paying dividends to eligible policyholders since 1872 and holds an A++ (Superior) financial strength rating with AM Best. The company ranks fifth out of 22 companies in terms of customer satisfaction in the J.D. study. Power’s 2022 U.S. Life Insurance Study. You will need to call for a quote.
Bestow: Bestow offers quick online quotes for period coverage and instant decisions for most people. You can get up to $1.5 million in coverage for up to 30 years. Policies are issued by Bestow (which is not AM Best rated) or North American Life Insurance Company, which has an A+ (Superior) financial strength rating with AM Best.
Nationwide: Nationwide offers term, whole, universal, and variable universal life insurance along with long-term care coverage that includes a death benefit. The company offers no-exam coverage and medically underwritten appointments, and online quotes are available. The company has an A+ (Superior) financial strength rating from AM Best and is rated above average in terms of customer satisfaction by J.D. Power.
MassMutual: MassMutual does not offer online quotes, but you can get term, whole, universal or variable universal life insurance from the company. Eligible policyholders may receive dividends even though dividends are not guaranteed. MassMutual has a financial strength rating of A++ (Superior) with AM Best and is rated slightly above average for customer satisfaction by J.D. Power.
Banner: Banner tied with Protective for the cheapest life insurance out of the 91 life insurance companies we reviewed. The insurer offers term life insurance with a maturity of up to 40 years and universal life insurance. The Policy is endorsed by Legal & General America, which has an A+ (Superior) financial strength rating with AM Best.
State Farm: State Farm offers term, whole and universal life insurance. The company offers no medical examination policies as well as premium refund option. State Farm has a financial strength rating of A++ (Superior) with AM Best and is the top rated insurer in J.D. Power 2022 U.S. Life Insurance Study.
New York Life: New York Life was the top choice for Best Whole Life Insurance Companies of 2023. The company has paid dividends to eligible policyholders every year since 1854 and has a Financial Strength Rating of A++ (Superior) with AM Best. New York Life also offers term, universal and variable universal life insurance. However, policies are limited to 20 years and quotes are not available online. New York Life is according to J.D. Power rated slightly above average.
Consult a financial advisor
If you are unsure about your life insurance options, you may want to speak with a financial advisor to help you navigate the complexities of choosing permanent life insurance. This is probably not necessary if you are young, healthy and looking to buy term life insurance. But if you have lifelong dependents and need a permanent policy, if you need help with estate planning, or if you have health issues and worry about being denied coverage, a financial advisor can help. If you are concerned about your retirement planning or other investments, a financial advisor can help you understand your financial picture as a whole.
What Is Life Insurance?
A life insurance policy is a contract with an insurance company that provides a lump sum payment to beneficiaries you choose in the event of your death. The policy must be valid at the time of death in order for the insurer to issue funeral benefits. Life insurance has temporary and permanent variants. It can sometimes be used to supplement retirement savings and can also provide access to benefits during life.
What Is Term Life Insurance?
Term life insurance is a policy for up to 30 or 40 years that provides a payout if you die within the period specified in your policy. If you die after the policy has expired, your beneficiaries will not receive death benefits. Term life insurance is affordable and adequate for most people’s needs. Some term policies may be convertible to a permanent policy or may come with benefits that you can use during your lifetime in certain situations.
What Is Term Life Insurance?
Whole life insurance is a type of permanent life insurance that provides a death benefit regardless of when you die, as long as the premium has been paid. Premiums are fixed and part of the premium goes towards building cash value that you can access while you are alive. Whole life insurance can cost six to ten times the premium for a term life insurance policy with the same face value.
What Is Term Life Insurance?
Life insurance begins with an application for insurance, which may require a medical examination. When determining the premium, the insurance company evaluates your age, health and other factors. If you are satisfied with the quote, you will sign the life insurance contract. As long as you pay the necessary premiums and die before the policy expires (term life insurance only), your designated beneficiaries will receive the death benefit.
How Much Life Insurance Do I Need?
There are a few basic rules for calculating how much life insurance you need. One popular method is to multiply your annual income by 10. Another, called the DIME method, is to add up your debt, your income for the number of years you’ll have dependents, your mortgage balance, and the cost of sending your kids to college. Finally, you will need to evaluate your individual financial situation
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