In the event of an untimely death, having your finances in order is important to help protect your loved ones. In addition to, a life insurance policy can bolster your family's financial security and ease the burden of latent expenses.
Life insurance works like a contract. In exchange for the payment of a premium, an insurance carrier agrees to pay a specified amount of money, called the death benefit, to a beneficiary in the case of the policyholder's death. Purchasing a life insurance policy requires designation of beneficiaries who will receive monetary support after you die. Your premium, which is a fixed amount, can be paid either monthly or yearly. The amount of the death benefit and length of the coverage period are variables that figure into the price of your premium.
The two main types of life insurance are term life insurance and permanent life insurance. Term life insurance provides a certain amount of financial protection for a premium that's paid over an exact period of time, or term, such as 20 or 30 years.
Once the term is up, the policyholder can forgo protection or sign up for an additional policy with new terms and conditions. Term insurance generally provides the highest amount of financial protection for the lowest cost.
"If I need to make sure my family or business is protected in the case of my passing prematurely, I want to focus on term insurance," says David Gastwirth, an insurance strategist with American Business. "It's the fundamental cornerstone of one's insurance plan."
Death benefits for term life insurance typically start at $100,000 and go up to $3 million, which should be an adequate life insurance protection for most people. (In some cases, you can get a term life insurance policy with a $5 million benefit.) Gastwirth recommends erring on the side of more coverage since the cost of a life insurance policy increases as you age -- and if you develop health issue complications later in life, you could become uninsurable.
Permanent life insurance includes whole life, universal life or any combination of policies that are designed to provide protection for the entire life of the policyholder, as long as premiums are paid. Most of these policies include an insurance portion and an investment portion.
Some companies will sell hybrid life insurance polices that bundle long-term care insurance. If long-term care isn't used, the remaining value of that portion of the insurance shifts to the death benefit. If long-term care is required, the death benefit will be reduced accordingly.
The cost of a life insurance policy -- and the pricing of your monthly or annual premium -- is primarily determined by the term length and size of the death benefit. Other factors that may come into play include your health and age at sign-up, gender, whether you're a smoker and where you live. Adults in good health under the age of 40 can expect to pay between $25 and $50 per month for a 20- or 30-year term life insurance plan with a death benefit around $500,000.
Most experts recommend buying a policy with a death benefit equal to 10 to 12 times their annual income and a term long enough to cover living expenses and future financial liabilities, such as mortgage payments and college tuition.
After comparing coverage features, customer service rankings, corporate stability and the average price of a policy from 25 life insurance companies, we selected the six companies highlighted below. They all offer 20-year policies with a $500,000 death benefit for $23 to $32 per month (or $5,520 to $7,200 over the course of the term). The larger companies, including Northwestern Mutual and State Farm, are known for superior customer service and offer more expensive policies. All of the companies considered for our list offer policies to residents in every US state.
Read on to discover our top picks for insurance companies.
Best life insurance companies
We think Principal Financial Group offers the best combination of affordable coverage and customer satisfaction, which is why it tops our list of the best life insurance companies. It ranked 4th in J.D. Power's 2019 customer satisfaction survey and had far fewer customer complaints than the industry average, according to the National Association of Insurance Commissioners.
Among the companies profiled here, Principal's insurance coverage monthly premium, with packages including universal life insurance, was the second least expensive. A 20-year, $500,000 term life policy for a healthy 35-year-old costs $23 per month -- compared with an average life insurance rate of $25.80. That, plus an A+ financial strength rating from A.M. Best and 140 years in the business, makes Principal a great insurance company choice for just about anyone looking to ensure that their loved ones have additional financial stability.
Principal offers life insurance plan term lengths of 10, 15, 20 and 30 years, with death benefits ranging from $200,000 to $5,000,000. The $200,000 minimum is a bit higher than others, but most people should opt for a policy with at least $250,000 of coverage, if possible.
State Farm's prices are similar to Northwestern Mutual's, but this insurance company's more expensive policies earn excellent customer service marks and offer a lot of term length flexibility. You can also begin the life insurance coverage application process on the State Farm website, though in most cases you'll eventually need to speak with a State Farm representative to finalize your insurance product application. Like Haven Life, State Farm offers add-on riders that let the policyholder access a living benefit subtracted from the death benefit cash value should that person have a situation such as terminal illness or disability.
Haven Life Insurance Agency's policies are backed by MassMutual, one of the biggest and oldest insurance companies in the US. But its modern touches and unequaled convenience are what distinguish this insurance agency from the rest of the field.
Most insurers require you to meet in person with a financial advisor or a life insurance product agent before approving your policy. (Some won't even give you a quote without a phone call first.) In the novel coronavirus era, shopping for term life insurance coverage, universal life insurance or a permanent life insurance policy from the comfort and safety of your own home is a particularly compelling prospect. Haven Life is one of the few life insurance company providers that will sell you a policy without requiring a doctor or lab visit first. Haven Life also offers policy riders that may let you access part of a policy's cash value death benefit in the event of a disability or terminal illness.
Most customers will need to complete a medical exam within 120 days after signing up, but coverage starts immediately after being approved online. Your responses must be accurate, as any discrepancies could create issues with payment of the death benefit. As long as you have a reasonably complete understanding of your family's health history (and your own), the application shouldn't take more than 15 to 20 minutes.
Haven Life, a top life insurance agency, had the lowest term life price quote among all the providers listed here. A 20-year, $500,000 policy for a healthy 35-year-old costs $22.34, compared with an average of $25.80. Haven Life offers term life policies ranging from 10 to 30 years, with term insurance coverage benefits ranging from $100,000 to $3 million to help provide financial stability for your family. And MassMutual has a solid reputation for customer service and financial standing.
With an offering that's similar to Principal Financial Group's, Nationwide doesn't win any life insurance coverage category outright, but ranks consistently high in all life insurance product plans. The life insurance company's prices are right in line with the field, offering options for term life insurance, universal life insurance, whole life and variable life insurance. The insurer is known for good customer service and corporate stability. It also offers a large number of riders -- more than many competitors.
Banner Life insurance policies are issued by Legal and General America, the American branch of the British multinational financial services company. Legal and General wasn't included in JD Power's survey but the life insurance company has been around since 1836 and has an excellent reputation for customer service and affordability. This insurance company provides both term life insurance and universal life insurance, a type of permanent insurance. And it's one of the few companies we've seen that offers 25-year terms.
Though each of these life insurance company options has earned a reputation for respectable customer service, Northwestern Mutual is known as the best in the business. The largest life insurer in the US, Northwestern topped JD Power's 2019 customer satisfaction survey and has been recognized by the National Association of Insurance Commissioners for having the fewest customer complaints on average of all life insurance coverage insurers.
Most of Northwestern's term insurance policies span 10 to 20 years. Benefits start at $100,000 and go up to $5 million, though a company representative said on the phone that they're always adding new products and you should speak with a financial advisor about what life insurance product makes the most sense for your situation.
Northwestern offers premium customer service -- but the insurance company's policies, including term life insurance, whole life insurance and universal life insurance, aren't cheap. With quotes that are roughly 20% higher than competitors', there are plenty of more affordable life insurance plan options. That noted, if exceptional customer service is your priority, Northwestern is the best choice.
Best life insurance companies, compared
|Company||Principal Financial Group||State Farm||Haven Life (MassMutual)||Nationwide||Banner Life / Legal and General America||Northwestern Mutual|
|Best for||Best overall||Best in customer satisfaction||Cheapest and fastest||Most riders||Most flexible terms||Best for earning dividends|
|JD Power Customer Satisfaction Rank||10||1||7*||2||N/A||3|
|Coverage terms||10, 15, 20 or 30 years||10, 20 or 30 years||10, 15, 20 or 30 years||10, 15, 20 or 30 years||10, 15, 20, 25 or 30 years||10 or 20 years|
|Death benefits||$200,000 to $5 million||Unspecified||$100,000 to $3 million||$100,000 to $1 million||$100,000 to $10 million||$100,000 to $5 million|
|Can you buy a policy online?||No||Yes||Yes||No||No||No|
*This score is for MassMutual, which owns Haven Life.
Should I buy life insurance?
If anyone relies on you for financial support -- children, spouse or parent -- you should have life insurance.
Many people buy a policy around the time of a major life milestone. When you take on debt to buy a house or send a child to college, a policy can help ensure that your obligations are paid even if you die. A life insurance policy can also help your dependents manage living expenses as well as include final expense insurance for burial and funeral costs.
I'm under 40 and in good health. Do I really need life insurance?
Yes. The best time to buy life insurance is when you are young and healthy, because it becomes more expensive as you become older.
What is a rider? Should I add one to my policy?
A rider is an optional feature that you can add to a standard policy; they're usually available only for a whole life or universal life insurance policy. A chronic illness rider, for example, provides the insured with a portion of their death benefit if they're diagnosed with a terminal illness. A disability rider waives or reduces the monthly premium if the policyholder becomes incapacitated.
Though that may sound attractive, most riders aren't worth the expense. While they might only add a dollar or two to your monthly premium payment, that adds up over 10 or 20 years.
I have health problems or preexisting conditions. How should I shop for insurance?
It's worth shopping around to see if any life insurer offers a policy designed for your specific situation. Health insurance companies generally classify clients in one of four categories: Preferred Best (sometimes called "Super Preferred"), Second Best Preferred (or simply "Preferred"), Standard Plus and Standard. Current or recent smokers are classified as either Preferred Smoker or Standard Smoker.
Each insurance company has its own approach to classifying customers; some may categorize you as a smoker even if you quit three years ago. Your categorization will help determine your life insurance coverage premium, so be honest and specific when speaking with an advisor or representative. And it's worth the effort to identify a life insurance company and policy that will cover you affordably and effectively, whatever your health status.
How should I choose a life insurance term period?
You want a policy that covers the period of your greatest financial liabilities. If you're buying insurance today to ensure that you can pay college tuition for a 12-year-old child, for example, a 10-year policy would make sense. It's generally better to err on the side of a longer-term policy, since the cost and availability of products will change as you get older.
How should I choose a coverage amount?
There are two ways to approach this. An "income replacement" strategy provides your family with a payout that's sufficient to support them for 15 to 20 years, through a combination of principal and interest. An appropriate amount of coverage is roughly 10 to 12 times your current annual income.
The alternative is "expense calculation," which correlates the size of the policy with your present and future financial obligations -- such as a mortgage or college tuition (which currently comes to around $175,000 on average for a private four-year institution). Both factors can help you when determining the size of your policy. Nationwide provides a useful online worksheet for a more in-depth look.
What should I do if my financial situation changes significantly?
Life is unpredictable, and when your financial situation changes, you'll need to reassess your insurance coverage. If you no longer need insurance, you can always cancel your policy. If your obligations increase significantly -- you take on a mortgage or have kids, for example -- you can always purchase additional insurance. Even though life insurance is designed for the long term, there are plenty of supplemental options for when circumstances change.
Should I buy a guaranteed life insurance policy?
For most people, the answer is no. Guaranteed life insurance policies are easy to get, even for older or less healthy people who may not need to take a medical exam. But the death benefit is typically very low and the premiums are high. Also, most guaranteed policies have a two-year waiting period: If you die during the first two years of coverage, the insurer will refund the cash value of the premiums you paid -- but not provide the death benefit.
What if my coverage term expires before I die?
Despite the name, life insurance is really more income insurance. It ensures uninterrupted financial support for your family. Once your children can support themselves, your mortgage is paid off and you've saved enough to cover retirement, you'll have less need for life insurance.
How we chose the best life insurance companies
All the providers profiled here satisfy the minimum requirements for a life insurance company. Our analysis prioritized customer service, financial standing and price -- but each of these companies has earned respectable customer service grades from J.D. Power, a low complaint index from the National Association of Insurance Commissioners and an A++ or A+ rating for financial strength from A.M. Best.
Though some of their policies are less expensive than others, all of these insurance product companies offer competitive premium rates. Note that the exact price of your life insurance policy will depend on your health, location, sex and age. The bottom line: You can confidently choose any of these insurance company options for a reasonably priced, comprehensive term life insurance policy.
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