While it’s Important to savor life’s experiences, planning for when you die is important. If you have loved ones relying on your income, a life insurance policy is likely necessary. However, navigating the selection process for the right life insurance can be daunting. If you’re uncertain about where to begin, you’ve landed in the right place.
In this guide to purchasing life insurance, we’ll explore the various types available, guide you on calculating the appropriate coverage for your needs, and assist you in comparing companies to find the most suitable life insurance. Additionally, we’ll provide an overview of our recommended life insurance providers, empowering you to make the optimal choice for your circumstances.
Type of Life Insurance Explained
When picking a life insurance plan, it’s important to determine the type that suits your needs. There are two main categories to think about: term and permanent.
Temporary Life Insurance
Term life insurance offers temporary coverage for a set duration, usually ranging from 10 to 30 years (some companies, such as Protective, extend terms up to 40 years). In the event of your death during the policy’s term, your beneficiaries receive a payout. However, if you survive beyond the policy’s expiration, you won’t receive any funds from your insurance company unless you have a return-of-premium policy.
Term life insurance is crafted to offer financial support to your dependents during crucial times—such as your income-earning, child-raising, college-saving, and mortgage-paying years. Even though it doesn’t guarantee a permanent death benefit, term life insurance typically fulfills the needs of most individuals and is notably more budget-friendly than permanent life insurance. While the actual rates depend on factors like your age, gender, health, policy preferences, and more, our research indicates that a healthy 30-year-old woman, on average, might pay around $25 per month for a 30-year, $500,000 policy.
Whole Life Insurance
In contrast to term life insurance, whole life insurance is crafted to remain in force throughout your lifetime, ensuring a death benefit for your beneficiaries regardless of when you pass away, as long as you keep up with your premium payments. Various types of permanent life insurance exist, but many include a cash value component that can be withdrawn or borrowed against during your lifetime.
- Whole Life Insurance: Whole life insurance comes with fixed premiums and a guaranteed death benefit. The cost of whole life insurance can be up to 10 times higher than the premium for a term policy with the same death benefit. This type of insurance is most suitable for individuals with lifelong dependents or those with estate planning needs.
- Universal Life Insurance: Universal life insurance offers flexible premiums and an adjustable death benefit, coupled with a cash value component that earns interest. While similar to whole life insurance, it provides fewer guarantees and is ideal for those seeking more flexibility. Variable life insurance and equity-indexed life insurance typically fall under the category of universal life insurance, where the cash value fluctuates based on market performance.
- Final Expense Insurance: Also referred to as burial insurance, final expense insurance is a form of whole life insurance with a modest death benefit, usually $40,000 or less. It is tailored for older individuals with health issues and doesn’t require a medical exam.
How to Choose the Right Life Insurance Policy
To pick the ideal life insurance provider, start by figuring out your needs. Then, narrow down your choices to companies that provide the coverage you seek.
Determine what you Need
What amount of coverage is necessary for you? To estimate your life insurance needs, begin with the income you contribute to your dependents, considering workplace benefits and any services you provide that they would have to replace.
Multiply the outcome by the number of years you require coverage, accounting for inflation, and subtract any expected Social Security benefits. Include additional funds for your children’s college expenses or your spouse’s retirement as you deem appropriate.
For what duration do you require coverage? It’s advisable to arrange for a policy that provides coverage either until your retirement, until your debts are paid off, and you’ve accumulated enough savings for your family to rely on, or until your dependents become self-sufficient.
Determining Your Affordable Life Insurance
What amount of life insurance fits within your budget? It might be necessary to make adjustments in other parts of your budget to secure a policy that satisfies your requirements, or you may have to make concessions on the type of policy you select. Examine your other expenses and establish a monthly spending limit that is practical for you. If you desire permanent life insurance coverage but find it expensive, contemplate complementing it with a term policy to attain the necessary death benefit at an affordable cost.
Which additional options or features matter to you? Life insurance riders offer extra advantages with your policy. For instance, certain riders enable you to tap into a part of the death benefit while you’re alive, especially for health-related expenses. Some riders permit you to cease premium payments in case of disability. When purchasing a term policy, it’s essential to determine if you want the flexibility to convert it into a permanent one. Keep in mind that some riders may come with the policy, while others might involve additional costs.
Compare Life Insurance Providers
- Assess financial stability: Confirm that the company you decide on is financially secure to fulfill your future death benefit by examining financial strength assessments from independent rating agencies like AM Best.
- Assess customer grievances: Check the National Association of Insurance Commissioners (NAIC) complaint index for each company to see if they received a below-average or above-average number of complaints compared to others. An ideal complaint index is below 1.00—the lower, the better. Additionally, you can examine customer feedback on external platforms like Trustpilot for recurring complaint trends.
- Examine Customer Grievances: check Customer Satisfaction: Review the company’s standing in J.D. Power’s latest U.S. individual life insurance study, gauging customer satisfaction across various aspects.
- consider the Types of Policies Offered: Focus on companies that provide the specific coverage type and amount you are looking for.
- Explore Policy Options: Explore Additional Coverages: After determining the riders you desire, assess their costs with each company and check if any are provided without an initial fee. For instance, certain companies excel in incorporating living benefit riders into their policies compared to others.
- Take the Application Process into Account: Numerous companies provide policies with same-day approval that skip the need for an exam, particularly for term and final expense policies. However, opting for an exam might be beneficial if you’re in good health. The expense of life insurance heavily relies on your health, and you may not qualify for the top health classification with a no-exam life insurance policy.
- Obtain Life Insurance Estimates: Gather quotes from several life insurance companies. Begin by acquiring online quotes from those companies that provide them, either through an insurance comparison website or by reaching out to an insurance broker.
- Review the Details: Prior to making your initial payment, ensure you comprehend the specifics of the policy and identify any exclusions.
- Understand the Duration of the Free-Look Period: Life insurance firms must provide new policyholders with a free-look period, allowing them to review policy specifics and cancel coverage for a complete refund without any inquiries. The duration of this period differs by state but is usually a minimum of 10 days.
Top Life Insurance Companies
Protective: Our top choice for the best life insurance company for young adults is Protective, providing affordable term coverage with online quotes and term lengths extending up to 40 years. Protective offers convertible term life insurance policies, but the most budget-friendly rates observed are for its non-convertible term life insurance plans. The company also provides whole and universal life insurance options and holds an A+ (Superior) financial strength rating from AM Best, although it is rated below average by J.D. Power.- Mutual of Omaha: Mutual of Omaha stands out as a top life insurance provider, particularly for its living benefits. Most of its policies come with accelerated death benefits at no initial charge. The company offers various types of insurance, including term, whole, and universal life, as well as accidental death coverage. With an A+ (Superior) financial strength rating from AM Best and a third-place ranking out of 22 companies for customer satisfaction by J.D. Power, Mutual of Omaha is recognized for its financial stability and customer service.
- Guardian: Guardian provides term, whole, and universal life insurance, and you can easily obtain online quotes for term coverage. Their term policies are convertible, allowing you the option to convert to a permanent policy with long-term care coverage if you choose to include the Care Conversion Option rider with your term policy. Guardian holds an A++ (Superior) financial strength rating from AM Best and is rated above average for customer satisfaction by J.D. Power.
- Northwestern Mutual: As the leading life insurance provider based on market share, Northwestern Mutual offers a range of life insurance options, including term, whole, universal, and variable universal policies. The company, with a history of paying dividends since 1872, holds an A++ (Superior) financial strength rating from AM Best and ranks fifth in customer satisfaction according to J.D. Power’s 2022 U.S. Life Insurance Study. Quotes are available through a phone call.
- Bestow: Bestow simplifies the process with quick online quotes for term coverage and instant decisions for most applicants, providing coverage up to $1.5 million for up to 30 years. Policies are issued by Bestow (not rated by AM Best) or North American Life Insurance Company, which holds an A+ (Superior) financial strength rating from AM Best.
- Nationwide: Offering a variety of life insurance options, including term, whole, universal, and variable universal policies, Nationwide also provides long-term care coverage with a death benefit. The company offers both no-exam and medically underwritten term coverage, with online quotes available. Nationwide has an A+ (Superior) financial strength rating from AM Best and ranks above average for customer satisfaction by J.D. Power.
- MassMutual: MassMutual, though lacking online quotes, provides term, whole, universal, or variable universal life insurance. Eligible policyholders may receive dividends, though not guaranteed. The company holds an A++ (Superior) financial strength rating from AM Best and is rated slightly above average for customer satisfaction by J.D. Power.
- Banner: Tying with Protective for the most affordable life insurance among the 91 reviewed companies, Banner offers term life insurance with terms up to 40 years and universal life insurance. Policies are supported by Legal & General America, which holds an A+ (Superior) financial strength rating from AM Best.
- State Farm: State Farm presents a variety of life insurance policies, including term, whole, and universal options. The company provides no-medical-exam term policies and a return-of-premium option. With an A++ (Superior) financial strength rating from AM Best, State Farm is the top-ranked insurer in J.D. Power’s 2022 U.S. Life Insurance Study.
- New York Life: Recognized as one of the best whole life insurance companies in 2023, New York Life has a long history of paying dividends since 1854. The company holds an A++ (Superior) financial strength rating from AM Best and offers term, universal, and variable universal life insurance. However, term policies are limited to 20 years, and online quotes are not available. New York Life is ranked slightly above average by J.D. Power.
Seek Advice from a Financial Consultant
If you find yourself perplexed by the various life insurance choices, considering a discussion with a financial advisor can provide valuable assistance in navigating the complexities of selecting a permanent life policy. While it may not be essential for young, healthy individuals seeking term life insurance coverage, consulting a financial advisor becomes beneficial if you have enduring dependents requiring a permanent policy, need assistance with estate planning, or harbor concerns about potential coverage denial due to health issues. Additionally, if you have apprehensions about retirement planning or other investment matters, a financial advisor can offer insights to comprehend your overall financial landscape.
What Is Life Insurance?
Life insurance is an agreement with an insurance company, guaranteeing a one-time payment to the beneficiaries you designate upon your demise. To receive the death benefit, the policy must be active at the time of death. Life insurance is available in temporary and permanent forms, serving not only as a financial safeguard for loved ones but also potentially aiding in retirement savings. In certain cases, it can offer benefits during your lifetime as well.
What Is Whole Life Insurance?
Whole life insurance falls under the category of permanent life insurance, guaranteeing a death benefit regardless of when you pass away, provided that you have consistently paid your premiums. The premiums remain constant, and a portion of each premium contributes to the accumulation of cash value, which you can utilize during your lifetime. The cost of whole life insurance can be six to 10 times higher than the premium for a term life policy with an equivalent face value.
How Does Life Insurance Work?
Life insurance begins with completing a policy application, which might involve undergoing a medical examination. The insurance company considers factors like your age and health to determine your premiums. If you find the rate quote acceptable, you proceed to sign your life insurance contract. As long as you consistently pay the required premiums and pass away before the policy term concludes (specific to term life insurance), your chosen beneficiaries will receive the death benefit.
How Does Life Insurance Work?
Life insurance begins with completing a policy application, which might involve undergoing a medical examination. The insurance company considers factors like your age and health to determine your premiums. If you find the rate quote acceptable, you proceed to sign your life insurance contract. As long as you consistently pay the required premiums and pass away before the policy term concludes (specific to term life insurance), your chosen beneficiaries will receive the death benefit.
Determining the Right Amount of Life Insurance
To figure out the appropriate amount of life insurance, you can follow a few general guidelines. A commonly used approach is to multiply your annual income by 10. Another method, known as the DIME method, involves adding up your debt, your income for the years you’ll have dependents, the remaining balance on your mortgage, and the anticipated cost of your children’s college education. However, it’s crucial to assess your specific financial circumstances and consider your budget when determining the ideal life insurance coverage for you.