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Life insurance protects your loved ones if you die. There are two types of life insurance: permanent life and term life. This article focuses on the best term life insurance companies — as term life insurance is the most affordable option for most people.
Life insurance company ratings
Business Insider compiled data from 20 different life insurance companies based on customer service, financial stability, and asset size rankings, along with premium prices where available. From there, we determined the top five.
Financial Stability Rating (AM Best)
|JD Power Customer Satisfaction (out of 5)|
Sample Premium for a $250,000 policy 30-year term
|1. Northwestern Mutual||A++||5/5||n/a|
|2. State Farm||A+||5/5||$30/mo|
|3. Guardian Life||A++||4/5||$30/mo|
|4. New York Life||A++||4/5||n/a|
The full methodology of this ranking is listed below, under "How we determined the winners."
The best term life insurance companies
Northwestern Mutual has been around since 1857.
While probably better known for auto and home insurance, State Farm also offers life insurance coverage.
The company has longevity like Northwestern Mutual. It has been around since 1860.
New York Life
As the second-largest life insurance company in the US, New York Life is well known.
Nationwide is most known for bundling its auto, homeowners, and insurance products.
What to look for in a life insurance company
Term vs permanent life insurance
The difference between term life insurance and permanent life insurance is similar to the difference between renting an apartment and owning a home. When you rent, you have a lease for a certain term. When that lease is over, you can renew — but most likely with a rent increase.
Likewise, term insurance lasts for a specified period, and when it's up you can reapply for coverage, but the premiums most likely will go up as you age and your health deteriorates. Term life insurance is best suited for those who want to protect their family, since it's more affordable.
Permanent life insurance never expires, has a death benefit for your beneficiaries, and a cash value that you can use during your lifetime. It's like owning a home, where you gain equity that can be used as collateral — and your home can be left to your heirs leaving a legacy. This is why permanent life insurance is considerably more expensive than term life insurance.
Financial advisors suggests a combination of permanent and term life insurance. For example, if you have $200,000 in permanent life and $300,000 in term for 20 years, at the end of 20 years the term life insurance policy goes away but you still have your $200,000 permanent policy that has earned cash value.
Whether you choose permanent or term life insurance, you will need to go through the underwriting process. The underwriting process is how the insurance company determines your insurability — determining how much of a risk you are and how much to lend you. It may require a medical exam, which includes the collection of a blood and urine sample.
If you are on a fixed income with limited means, final expense, known as burial insurance, could be best for you. If you have health issues that may prevent you for traditional coverage, you may want to consider no medical examination life insurance.
It's wise to consult an accountant, estate planner, and financial advisor to determine which life insurance is best for you and advise you of the tax benefits and implications. It's worth taking the time to find the best policy for you, because once you've signed on the dotted line, it's a lot more difficult to make changes if you need to adjust your coverage.
How to figure out how much coverage you need
Traditionally, the rule of thumb is to get life insurance worth 10 times your annual income — so if you make $75,000 a year, you'd get $750,000 worth of coverage.
However, some experts consider that to be a low estimate, especially if you'd want your life insurance payout to cover your child's college tuition, or if you have a mortgage on your home you'd want to pay off. Some people choose to get millions in coverage.
Generally, you'll probably want to get as much life insurance as you can comfortably afford each month. If it would be a struggle to make your premium payments, it's probably too much for you.
How to find the best price
Like any other type of insurance, term life policies have many factors that influence the price you'll pay for coverage. Your age, health, location, and amount of coverage necessary will all change the monthly premium. The company you choose will look at all of these factors differently, leading to different prices for every company and each policy.
To get the best possible deal on life insurance, you'll want to shop around and compare quotes. That may be simpler with some companies than with others, as some on this list don't offer online quotes. But when available, comparing four or five quotes to find the best deal could be an effective way to save a few dollars each month on your premium. Since you'll pay life insurance for 20 or 3o years, that savings will add up.
How we determined the winners
Business Insider collected data on 20 companies from S&P Global, JD Power, and the insurer's own sites. We picked our top five based on financial stability ratings, customer satisfaction, and size of the company based on market share. When available, Business Insider also gathered sample premiums. We did not include companies that no longer offer individual life insurance or did not have a minimum 3 out of 5 for customer satisfaction.
Here are the factors we considered:
The JD Power 2019 US Life Insurance Customer Satisfaction Survey served as the basis of this category. Using the responses of over 6,000 life insurance customers, JD Power gathered information on customer's happiness with the application process, communications and interactions with the company, product offerings, prices, and statements.
Financial stability ratings
Several companies and agencies rate the stability and outlook of insurance companies, including Moody's, A.M. Best, and Fitch Ratings. Business Insider gathered ratings for each life insurance company from A.M. Best.
Size of financial assets (market share)
Business Insider obtained information on the biggest life insurance companies by market share from the National Association of Insurance Commissioners.
Sample premiums were collected when available through company websites. Each used the same sample person: a 35-year-old, single, non-smoking female living in Illinois, with the same height and weight and excellent health. These sample premiums were calculated based on a $250,000 policy with a 30-year term.
Frequently asked questions
Why trust our recommendations?
Personal Finance Insider's mission is to help smart people make the best decisions with their money. We understand that "best" is often subjective, so in addition to highlighting the clear benefits of a financial product or account we outline the limitations, too. We spent hours comparing and contrasting the features and fine print of various products so you don't have to.
Do I need life insurance?
If you have dependents — that's people who rely on your income, like children, a non-working spouse, or aging parents you support — you need life insurance. If you don't have dependents but do have debt or own a business, you might also want to consider it.
What is the average cost of life insurance per month?
The cost of coverage varies by company, by policy, and by policyholder. A healthy 35-year old man can expect to pay about $49 per month for a 20-year term life insurance policy according to data from Policygenius.
But, many factors influence the price of life insurance. Your overall health, hobbies, gender, age, and the amount of coverage you need will affect the price you'll pay for coverage.
Do I need term life insurance or permanent life insurance?
Most people only need term life insurance, or coverage for 10 to 30 years. For families with young children, people with mortgages, or anyone with debt, this is usually the right choice. While the policy will expire eventually, it will expire after your debts are paid, and children are grown and on their own. It covers you when you have the most at stake. Generally, they cost between $20 and $40 per month, depending on your health and the age when you start.
Permanent life insurance, however, works differently. It never expires and has a cash value component in addition to the death benefit. This is significantly more expensive on a monthly basis, but is guaranteed to pay out when you die, no matter your age. While it does help protect your family from final expenses and other costs, this policy is also meant to leave a financial legacy, donate to charity, or build an inheritance for family. Whole life insurance can cost six to 10 times more per month than a term policy.
For most young families, a term life insurance policy is enough coverage to protect your family while still being affordable. If you're unsure of which type of policy best suits your family, you might want to consult a financial planner.
How do I get life insurance?
There are a few ways to approach getting life insurance once you've decided how much coverage and what type of policy you need.
You can find policies through these insurers, or through online agencies, which are backed by major insurance companies. Online agencies let you bypass the need for an in-person insurance agent, and often offer the ability to get a quote and buy your own policy entirely online.
If you want to go the more traditional route, you can work with an agent. With some of the companies above, like Northwestern Mutual, you'll need to work with an agent to get a policy. Companies will generally either help to connect you with an agent or provide a list of agents in your area.
If you're working with a company that doesn't require an agent, you can go ahead with the application process yourself. After completing some questions about your health history, hobbies, and travel plans, you may be asked to complete a medical exam. However, some companies are changing their medical exam policies due to COVID-19. Talk with your prospective insurer to arrange an exam you're comfortable with.
After completing these steps and being approved by the insurer, you'll get your final monthly payment. From there, you'll start paying for your policy and have your coverage in place. It's important to talk to a financial advisor about your financial situation and goals to determine what life insurance is best for you.
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