Life insurance is essential if you have anyone in your life who depends on your income. Unfortunately, many people don't have the right type of coverage or the right amount. About half of all U.S. households have less life insurance than they should, according to the Life Insurance Marketing and Research Association. A separate study by employee benefits provider Unum finds that about a third of all households will be financially strained within the first month of losing a breadwinner.
The good news is that life insurance doesn’t cost as much as you might think it does. Some people even estimate that life insurance costs up to five times as much as it actually does, reports the Insurance Information Institute (III).
Northwestern Mutual: Our top-rated insurance company, Northwestern Mutual, has more than 160 years of experience in the financial services industry and offers a traditional approach to life insurance. Northwestern Mutual offers a variety of coverage options and a low-tech but personalized method of determining coverage needs, and its financial advisers are available to help customers through the process. Learn more in our Northwestern Mutual review.
Haven Life: Haven Life insurance company offers only term life insurance policies and utilizes an online application process without personal interaction with a traditional agent. While a relatively new player in the insurance business, it's backed by the well-established MassMutual. Haven Life aims to offer affordable, easy-to-manage term life insurance policies online, without the usual hassles of insurance shopping. Learn more in our Haven Life review.
State Farm: Our No. 3 life insurance company, State Farm has almost 100 years of experience and offers a wide variety of different types of insurance in addition to term, whole, and universal life insurance options. State Farm also offers discounts for customers who purchase multiple insurance policies. Learn more in our State Farm review.
Buying a life insurance policy is similar to buying a home in that you are paying for something that will be part of your life for many years to come. Just as you inspect a home before you buy it, you should evaluate any insurance company before buying a policy. Follow these tips to make sure the life insurance company you are considering is a sound business that will flourish decades into the future.
Financial strength: Get a financial strength rating from at least one of the five independent agencies: AM Best, Fitch Ratings, Kroll Bond Rating Agency, Moody’s, and Standard & Poor’s. This rating is based on an assessment of a life insurance company's financial stability. We base a portion of our Best Life Insurance Companies ratings on the AM Best financial strength rating, and every company on our list earned AM Best's highest rating of Superior.
ustomer service: Working with your life insurance agency or company will likely never be fun, but it shouldn’t be any harder than it needs to be. Look through professional and consumer reviews to gain a sense of what the life insurance company’s customer support is like. Life insurance companies that don’t make you spend a lot of time on hold, have easy-to-navigate websites, and have agents who are more interested in helping you than a commission will make your experience smoother and less stressful.
Policy types: Not all life insurance companies offer every type of policy. Rather than choosing the wrong type of policy because you like the company, start with a company that sells the kind of insurance that best fits your needs. We break down the differences between the types of life insurance and give a brief definition of other terms in our section below on Types of Life Insurance Policies.
Policy options and add-ons: Other important considerations when buying a policy include the amount of the premium, choices of premium payment arrangements, selections for term periods (for a term life policy), and the rate of return on the cash value (for a universal or whole life policy). Start off on the right foot by getting a firm understanding of what each of these terms means. See our Types of Life Insurance Policies section below for more information.
Company size: All else being equal, companies that hold the most assets are likely to be the most solvent, and therefore are less likely to run into financial trouble and possibly leave you or your loved ones holding a worthless policy. In addition, if you need a jumbo policy with a high payout, a large insurance company will probably be more willing to back it. Potential advantages of using a smaller life insurance company include more personalized customer service and a more congenial atmosphere.
One of the major barriers to understanding life insurance coverage can be the jargon. Terms like “indexed universal life insurance” and “whole life insurance” can seem a bit unclear. To make understanding life insurance easier we define some of the topic’s unique words and phrases. We go more in-depth on these in our How Does Life Insurance Work? and How to Buy Life Insurance guides.
Permanent life insurance: a category of long-term coverage that includes whole life and universal life policy types. These are more expensive than term but offer more benefits. This category is sometimes called cash value life insurance because of the savings like a cash value account that's built into the policy.
Whole life insurance: a type of permanent policy that has consistent premiums and guaranteed accumulation of cash value. This policy type may be eligible for dividends from a mutual company and typically is expensive. See our Whole Life Insurance guide for more information.
Universal life insurance: a type of permanent coverage that builds cash value. It's frequently offered with flexible premiums, although those premiums affect the cash value and death benefit. Find out more in our Universal Life Insurance guide.
Indexed universal life insurance: a universal life policy that accumulates cash value based on the performance of a specific market index such as the S&P 500. This type of policy is typically less expensive and less risky than a variable policy because there is no actual investment in an index.