Table of Contents
Table of Contents

How to Choose Life Insurance

How to choose the best company and policy for your family

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While you should enjoy everything life has to offer, it’s important to plan for what will happen when you die. If you have dependents who rely on your income, you probably need a life insurance policy. But 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 life insurance buying guide, we’ll cover the different types of life insurance, how to calculate how much life insurance you need, and how to compare companies. 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 a life insurance policy, you need to first identify which type of life insurance you need. There are two general types to consider: term and permanent.

Term Life Insurance

Term life insurance provides temporary coverage for a fixed period of time, typically between 10 and 30 years (some companies, like Protective, offer terms up to 40 years). If you die while the policy is in effect, your beneficiaries receive a payout. If you outlive the policy’s expiration, you won’t receive any money from your insurance company, unless you have a return-of-premium policy. 

Term life insurance is designed to provide money for your dependents when they need it most—during your income-earning, child-rearing, college-saving, mortgage-paying years. Though term life insurance doesn’t provide a permanent death benefit, it’s sufficient for most people’s needs, and it costs significantly less than permanent life insurance. While rates will vary depending on your age, gender, health, policy choices, and other factors, our research found that a healthy 30-year-old female 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 a death benefit for your beneficiaries no matter when you die, as long as your premiums are paid. There are a few different types of permanent life insurance, but most have a cash value element that can be withdrawn from or borrowed against while you’re still alive.

  • Whole life insurance: Whole life insurance has fixed premiums 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. It’s best for individuals with lifelong dependents or estate planning needs. 
  • Universal life insurance: Universal life insurance features flexible premiums and an adjustable death benefit along with an interest-earning 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 equity-indexed life insurance are usually types of universal life insurance. In both, your cash value fluctuates according to market performance. 
  • Final expense insurance: Also known as burial insurance, final expense insurance is a type of whole life insurance with a small death benefit (usually $40,000 or less). It’s designed for older people with health issues and doesn’t require a medical exam. 

How to Choose the Best Life Insurance Policy

To choose the best life insurance company, you’ll first need to determine what you need. Then, you can narrow down your options to companies that offer the coverage you’re looking for. 

Figure Out What You Need

  1. 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 as many years as you need coverage, adjusting for inflation and subtracting any Social Security benefits you expect to receive. Add money for your children's college needs or your spouse’s retirement as you see fit. 
  2. How long do you need coverage for? You should plan for a policy to cover you until you retire, until you have paid your debts and have sufficient savings for your family to depend on, or until your dependents are self-sufficient. 
  3. How much life insurance can you afford? You may have to trim other areas of your budget to get a life insurance policy that meets your needs, or you may need to compromise on the type of policy you get. Look at your other expenses and determine what’s feasible for you to spend each month. If you want permanent life insurance coverage, consider supplementing that with a term policy to get the death benefit you need at a price you can afford.
  4. What riders or policy features are important to you? Life insurance riders are a way to get more benefits out of your policy. For example, some riders allow you to access a portion of the death benefit while you’re still living if you need it for health-related expenses. Others allow you to stop premium payments if you become disabled. When buying a term policy, you should also decide if you want the option to convert your policy to a permanent one. Some riders may be included while others may cost extra. 

Compare Life Insurance Companies

  1. Check financial strength: To ensure the company you choose is financially stable enough to pay your death benefit in the future, consider financial strength ratings from independent rating agencies such as AM Best
  2. Review customer complaints: Look up each company’s National Association of Insurance Commissioners (NAIC) complaint index, which shows whether a company received a below-average or above-average number of complaints relative to other companies. A complaint index of less than 1.00 is ideal—the lower, the better. You may also look at customer reviews on third-party sites like Trustpilot for patterns of complaints. 
  3. Assess customer satisfaction: Check the company’s ranking with J.D. Power’s most recent U.S. individual life insurance study, which measures customer satisfaction in a variety of areas. 
  4. Consider available policy types: Narrow down your options to companies that offer the type of coverage you want in the amount you need.
  5. Consider riders: Once you’ve identified which riders you want, see how much they cost with each company and whether any are included at no upfront cost. For example, some companies are much better at including living benefit riders in their policies than others. 
  6. Consider the application process: Many companies offer same-day issue policies that don’t require an exam, especially for term and final expense policies. But it could be to your advantage to get an exam if you’re in good health. The cost of life insurance is based in large part on your health and you may not be eligible for the highest health classification with a no-exam life insurance policy.
  7. Get life insurance quotes: Collect quotes from a handful of life insurance providers. Start by getting online quotes from the companies that offer them, using an insurance comparison website, or calling an insurance broker. 
  8. Read the fine print: Before you pay your first premium, make sure you understand the details of the policy and any exclusions. 
  9. Know how long the free-look period is: Life insurance companies are required to give new owners a free-look period during which they can consider policy details and cancel coverage for a full refund, no questions asked. The length of this period varies by state, but is typically at least 10 days.

Best Life Insurance Companies

  • Haven Life: Haven offers up to $1 million in term life insurance without a medical exam or up to $3 million in term life insurance with medical underwriting. Both policies include an accelerated death benefit rider at no upfront cost and are issued by MassMutual or its subsidiary. Both have an A++ (Superior) financial strength grade with AM Best. Haven provides online quotes. 
  • Protective: Protective is our top pick for the best life insurance company for young adults, offering cheap term coverage with online quotes and term lengths up to 40 years. Protective offers term life insurance policies that are convertible, but the cheapest rates we’ve seen are for its non-convertible term life insurance policies. The company also offers whole and universal life insurance and has an A+ (Superior) financial strength rating with AM Best but is ranked below average by J.D. Power.
  • Mutual of Omaha: Mutual of Omaha is one of the best life insurance companies with living benefits, offering accelerated death benefits at 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 for customer satisfaction by J.D. Power.
  • Guardian: Guardian offers term, whole, and universal life insurance, with online quotes for term coverage. Term policies are convertible, and you can even convert your term policy to a permanent policy with long-term care coverage (if you buy the Care Conversion Option rider with your term policy). Guardian has an A++ (Superior) financial strength rating with AM Best and is ranked above average for customer satisfaction 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. The company has paid 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 for customer satisfaction in J.D. Power’s 2022 U.S. Life Insurance Study. You’ll need to call for a quote. 
  • Bestow: Bestow offers quick online quotes for term 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 rated by AM Best) 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 both no-exam and medically underwritten term coverage, and online quotes are available. The company has an A+ (Superior) financial strength rating from AM Best and is ranked above-average for customer satisfaction by J.D. Power. 
  • MassMutual: MassMutual doesn’t offer online quotes, but you can get term, whole, universal, or variable universal life insurance from the company. Eligible policyholders can receive dividends, although dividends aren’t guaranteed. MassMutual has an A++ (Superior) financial strength rating 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 of the 91 life insurance companies we reviewed. The insurer offers term life insurance with terms of up to 40 years and universal life insurance. Policies are backed 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 policies. The company offers no-medical-exam term policies as well as a return-of-premium option. State Farm has an A++ (Superior) financial strength rating with AM Best and is the top-ranked insurer in the J.D. Power 2022 U.S. Life Insurance Study. 
  • New York Life: New York Life was a top pick for the best whole life insurance companies of 2023. The company has paid dividends to eligible policyholders every year since 1854 and has an A++ (Superior) financial strength rating with AM Best. New York Life also offers term, universal, and variable universal life insurance. However, term policies are limited to 20 years and quotes are unavailable online. New York Life is ranked slightly above average by J.D. Power. 

Consult With a Financial Advisor

If you’re confused about your life insurance options, you may want to speak to a financial advisor to help you navigate the complexity of selecting a permanent life policy. It’s probably not necessary if you’re young, healthy, and want to buy term life insurance coverage. 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 are worried about being denied coverage, a financial advisor can help. If you’re concerned about your retirement planning or other investments as well, 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 in force at the time of death for the insurer to issue the death benefit. Life insurance comes in both temporary and permanent varieties. It can sometimes be used to supplement saving for retirement and it can provide access to benefits during life, too.

What Is Term Life Insurance?

Term life insurance is a policy of up to 30 or 40 years that provides a payout if you die within the period of time specified by your policy. If you die after the policy expires, your beneficiaries won’t receive a death benefit. Term life insurance is affordable and sufficient for most people’s needs. Some term policies may be convertible to a permanent policy or may come with benefits you can use during your life in certain situations.

What Is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance that delivers a death benefit no matter when you die, as long as your premiums have been paid. Premiums are fixed and part of the premium goes towards building cash value, which you can access while you’re alive. Whole life insurance can cost six to 10 times the premium for a term life policy with the same face value.

How Does Life Insurance Work?

Life insurance starts with a policy application, which may require a medical exam. The insurer will evaluate your age, health, and other factors when setting your premiums. If you’re happy with your rate quote, you’ll then sign your life insurance contract. As long as you pay necessary premiums and die before the policy expires (only for term life insurance), your designated beneficiaries will receive a death benefit.

How Much Life Insurance Do I Need?

There are a few rules of thumb to calculate how much life insurance you need. One popular method is to multiple 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, the balance of your mortgage, and the cost to send your children to college. Ultimately, you’ll need to evaluate your individual financial situation and your budget when deciding how much life insurance to buy.

Article Sources
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  3. J.D. Power. “Both Life Insurance and Annuity Customer Satisfaction Decline as Pandemic Fears Wane, J.D. Power Finds.”

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