Life insurance is a contract between you and the insurance company that says the life insurance company promises to pay out a death benefit if you have paid your premiums.
Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, paying a mortgage or putting a child through college. Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for.
There are two primary types of life insurance: term and permanent life. Permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance provides protection for a certain period.
How To Find the Best Life Insurance Policy for You
Pinpointing the best life insurance policy can be a challenge for any buyer because there are so many different types of life insurances. But there is no reason to go it alone. Financial advisors and experienced life insurance agents have the background to help you make the right decisions based on your financial goals and budget.
Here are some important things to remember when shopping for the best life insurance.
Look at financial strength ratings
A strong financial strength rating means you can be confident an insurer will be able to pay out claims in the future. Additionally, insurers with greater financial strength are less likely to increase internal policy costs and premiums in response to challenging financial times.
Financial strength ratings are available from agencies such as Standard & Poor’s and AM Best, and are usually found on insurers’ websites. All of our best life insurance companies have Superior (A+ to A++) or Excellent (A- to A) financial strength ratings.
Select life insurance as part of a larger financial plan
Life insurance helps your loved ones cover expenses and reach financial goals after you’re gone. Reviewing your financial goals with a financial advisor can help ensure you get a life insurance policy that helps you meet those goals. For example, a term life policy might be a good fit to ensure your children have money for college if a parent passes away. But a cash value policy might be a better choice if you want to supplement retirement income.
Work with an experienced life insurance agent
Life insurance quotes are determined by factors such as your age, gender, lifestyle (such as smoking) and health. All factors are important, but health has a tremendous impact on the rates and types of life insurance you’ll qualify for—and which insurance companies will have the best life insurance quotes for you.
An experienced independent agent or financial advisor can save you a lot of time and frustration by pinpointing the insurance companies that are most likely to give you favorable rates based on your health and other factors.
Overall health can vary significantly among states, according to Forbes Advisor’s analysis of 21 metrics. We ranked the most and least healthy states across the country.
Top 5 healthiest states
Don’t assume insurance companies offer competitive pricing for everyone
Every life insurance company has its own rules that determine the rates it offers. As a result, your premium can vary significantly depending on the insurer. The accumulation rate of cash value and the policy fees for cash value policies also vary between companies.
Insist that cost disclosures for universal life insurance be included in any proposals
A life insurance quote reflects what you’ll be billed for, but it doesn’t always tell you about a policy’s internal costs, such as expenses and fees.
Universal life insurance policies have premiums, like any other life insurance policy, but they also have other costs in the form of policy fees. When shopping for this type of policy, be sure to ask the insurer about premiums, fees and any other costs that may be associated with the policy.
“Current regulations in some states and for some products permit insurers to ‘quote’ a low premium while charging high costs—without disclosing that you may need to pay additional premiums later in order to avoid a lapse,” warns Barry Flagg, founder of Veralytic.
Figure out if you want life insurance riders
If you can’t seem to find a life insurance policy that seems perfect, you may want to check into the offered by the insurance company.
Life insurance riders allow you to customize your policy by adding extra coverages. Common riders include benefits you can use while you’re alive, such as and waiver of premium if you become disabled.
Some riders are included in certain types of life insurance policies without extra charge, such as accelerated death benefit riders. If you’re interested in customizing and expanding coverage, ask your life insurance agent to explain your rider options.
Life insurance for military members
Military service members have life insurance options that are specifically for them:
- Active-duty service members of the Army, Navy, Air Force, Space Force, Marines, or Coast Guard or those who meet other eligibility requirements qualify for Servicemembers’ Group Life Insurance (SGLI).
- Veterans who had SGLI before retirement qualify for Veterans’ Group Life Insurance (VGLI).
The Supporting Families of the Fallen Act passed in October 2022, increasing the coverage amounts of both SGLI and VGLI from $400,000 to $500,000.
Military members who decide to supplement SGLI or VGLI can do so with a private insurance company, like the American Armed Forces Mutual Aid Association, USAA and many others.
Types of Life Insurance
There are two primary types of life insurance: term life and permanent life.
Term life insurance
is a policy where you choose the length of coverage, such as 10, 15, 20 or 30 years. If you die within that term, your beneficiary will receive the death benefit. If you outlive the term and don’t renew the policy (at a higher cost), there is no death benefit.
Term life insurance is good for folks who want to cover a specific financial concern, such as income replacement during your working years.
Permanent life insurance
is good for folks who want a death benefit paid out no matter when they pass away. Permanent life insurance policies also have a cash value component that can accumulate money on a tax-deferred basis. Permanent life insurance is usually significantly more expensive than term life.
People who choose permanent life insurance usually have specific goals in mind, such as supporting financial dependents, funding a trust for heirs, or building cash value to supplement retirement savings.
Permanent life insurance can be broken down into main subtypes:
Whole life insurance
is predictable because the premiums, rate of cash value growth and amount of the death benefit are fixed and guaranteed.
Universal life insurance
This type offers more flexibility and you may be able to adjust premium payments and death benefits within certain parameters. The cash value growth will depend on the insurer and the performance of the invested assets that are underlying the policy. Types of are fixed-rate universal, guaranteed universal, indexed universal or variable universal.
Permanent life insurance policies can be difficult to understand from quotes or hypothetical illustrations. Simply comparing life insurance quotes or some projection of cash values won’t reveal whether the policy is a good value. “Look under the hood,” advises Flagg of Veralytic. For example, a life insurance agent or financial advisor can request a Veralytic report to see how the policy you’re considering compares to industry benchmarks.
“Ultimately, the premium you’ll have to pay and/or the cash value growth you’ll see depends on what the insurer actually charges and how well the investments do. You want to confirm that internal policy costs are competitive and that the investments within the policy fit your risk tolerance,” cautions Flagg.
Variable life insurance
offers flexibility not found in whole life insurance, but with a safety net so your death benefit can’t drop below a certain amount.
That flexibility includes deciding on where to invest your cash value. The investments you choose play a vital role in the success of your policy, which makes this an option if you want to play an active role in your life insurance. Unlike a variable universal policy, a variable life insurance policy offers a safety net so that your death benefit won’t fall under a specific dollar figure.
A variable life insurance policy doesn’t let you change your premiums, which also makes it unlike variable universal life.
Similar to other types of permanent life insurance, a variable life policy offers cash value, which you can tap into while you’re alive. You need to make sure your policy maintains at least a minimal level of cash value or your policy could lapse.
No-exam life insurance
Life insurance companies sometimes offer policies without a life insurance medical exam. These no-policies don’t require an exam but you may be asked to answer health-related questions.
Types of life insurance policies include:
- Accelerated underwriting: Life insurance companies primarily use information from third-party sources and algorithms to set your rate. The insurance company will review your prescription drug history, criminal record and driving record to gauge your risk. With that information, the insurance company will set your life insurance rates.
- There’s no medical exam, no health questions asked and you can’t be turned down.
- There’s no medical exam, but you likely have to answer a handful of health questions.
Guaranteed issue and simplified issue policies can cost much more than policies that are fully underwritten, but they’re a way to get life insurance quickly and may be the only option for older people and those with health issues.
Other types of life insurance
Other include:
- Burial insurance: Also called funeral insurance or final expense insurance, a policy typically has a small death benefit meant to pay off final expenses, such as $10,000. They are typically whole life insurance policies and will have a high cost for the amount of coverage.
- Survivorship life insurance: A policy, also called second-to-die life insurance, offers coverage for a husband and wife. The death benefit isn’t paid out until both people die.
- Mortgage life insurance: A policy pays off your mortgage if the policyholder dies. The payment goes directly to the mortgage lender.
- Supplemental life insurance: is a free or low-cost group policy that may be offered by an employer or group. If a supplemental policy is connected to an employer, you will likely lose that coverage if you quit or are terminated.
What Types of Life Insurance Do Others Buy?
Term life insurance is more popular than permanent policies, based on current ownership. According to the American Council of Life Insurers:
- 48% of U.S. households report having a term life policy, making it the most popular choice compared to cash value policies.
- About 20% of households report having a cash value life insurance policy with cash value.
- The median face value of term life policies by household is $110,000.
- The median face value of cash value policies by households is $50,000.
The best type of life insurance for you is one that fits your budget, financial goals and the needs of your beneficiaries.
If your goal is to cover your loved ones for a specific period of time—like while you pay down a mortgage or raise children—a term life insurance policy is usually the best option. This is particularly true if you’re on a budget, as term life insurance policies are more affordable than permanent policies.
If you want to ensure financial protection for your spouse or loved ones for the long haul, then permanent life insurance may be better. The same is true if you want a life insurance policy with a savings feature because permanent life insurance includes a cash value component, such as whole life insurance.
Most rely on employer’s group life insurance coverage
Most (58%) Americans rely solely on their employer for life insurance, according to a December 2022 Forbes Advisor survey of 1,000 adults with at least one child under age 18.
Have you purchased life insurance outside of your employer’s policy?
But group life insurance is called for a reason. This type of life insurance is provided by employers and is usually at a low cost or no cost to the employee. However, coverage is usually limited to an amount predetermined by the employer—such as one year’s salary—and is usually only active if the employee stays with the company.
Relying solely on workplace life insurance may leave you underinsured. Instead, buy an individual life insurance policy with a death benefit and length of time that best fits your needs.
Inheritance and lost income top reasons for buying individual life insurance
More than a third (42%) of respondents say they have purchased life insurance outside of their employer’s policy. Of those who did so, nearly half (47%) say they did it to provide an inheritance. Nearly a third (32%) wanted life insurance to replace lost income for their beneficiaries.
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