When people start considering getting life insurance, one of the first questions that pop up is: “What is the best life insurance?”
Here’s the straight answer: The best life insurance is the one that fits your needs.
I know that sounds rather obvious, and you’re probably expecting to receive an actual recommendation showing which insurance company to buy your policy from.
I wish it were that easy but, sadly, it isn’t. Life insurance can be tricky, but only if you don’t identify first the main purpose you’re getting it and how it fits your overall financial strategy.
Done right, you can easily get a policy that suits your needs and more—and it all starts with asking the right questions.
So, before you go ahead and start shopping for deals, let’s do a quick rundown of key points you need to know to find the best life insurance.
Life Insurance 101: What You Need to Know
- A life insurance policy will allow your beneficiaries to receive a cash benefit when you pass away.
- The 3 types of life insurance are: Term, Whole, and Universal
- A medical exam is required in most cases especially for whole and universal life
- Policy costs vary across policies. Term life usually is the cheapest.
- Death benefits can be paid in lump sum, monthly, or a few other options
- Premiums can change over time unless you get a term life insurance plicy with a locked in rate for 10, 20, or 30 years. Should you wish to renew it after the contract, you’ll most likely be quoted with a pricier premium
- Consider getting your own personal life insurance policy even if you already have one through your employer, so that you will still have coverage when you’re not working there
- Term – Policyholder is guaranteed a death benefit payment during a fixed period of time. Payments of premiums are usually set at a fixed price as well.
- Whole – Policyholder is guaranteed a death benefit for his or her entire lifetime plus a “cash value” that grows over time (can be utilized as savings or to be borrowed against if needed)
- Traditional Whole Life Insurance – provides a guaranteed minimum rate of return on the cash value of your policy
- Interest-sensitive Whole Life Insurance – provides a variable rate on the cash value of your policy. This may allow you to increase your death benefit without the need to pay a higher premium (depends on the rate of return of your cash value)
- Single Premium Whole Life Insurance – Best for people who want to purchase a policy in a single lump sum.
- Universal Life – Similar to whole life in terms of having a death benefit and cash value portion but is considered more flexible in terms of premium payments.
- Indexed Universal Life Insurance – The returns on the cash value are linked to a stock index like S&P 500 or NASDAQ 100
- Variable Universal Life Insurance – Cash value portion is invested into mutual fund sub-accounts.
- Guaranteed Universal Life Insurance – Policy length is age-specific (not term). The most important thing is to make premium payments on time otherwise you might lose the level premiums or receive reduced death benefits.
Life Insurance Quick Guide: Should you get term, whole, or universal?
This section aims to guide readers who want to know what’s the best life insurance policy in their situation. While life insurance (especially term life) can be pretty straightforward, people don’t necessarily have the same type of needs.
Note that these are not absolute recommendations and are simply made for the purpose of giving the reader an idea on the various types of situations the policyholder might need life insurance.
|Type of Policyholder
|Primary source of income (breadwinner)
|Term – Coverage for your working years.
|Term – Coverage for the early years of your children
|Homeowners (with a mortgage)
|Term – Coverage that matches the years of your mortgage
|Term – Coverage during the years the children needs financial support
|Permanent – Guaranteed coverage for the beneficiary regardless of when the policyholder dies
|Permanent – Should be considered for estate tax purposes
|Individuals who want to provide an inheritance
|Permanent – Guaranteed payout to the receiver of the inheritance regardless of when the policyholder dies
|Individuals with maxed-out investment or retirement plans
|Permanent – The cash value option provides another avenue for asset building
How are my Life Insurance rates calculated?
How much you need to pay on a regular basis is determined by three things: Mortality, interest, and expense factor.
Mortality refers to the average life expectancy of a specific age group you belong to. This takes into consideration your age, gender, occupation, and location.
Interest is the earnings that the insurer can get from your cash value portion when they invest it in various investment vehicles.
Lastly, Expense factor refers to the operating expenses of the insurance company in managing and maintaining your policy.
The Best Life Insurance Companies for 2019
There are several things to consider when it comes to choosing your life insurance provider. However, these 3 popular rating metrics could help in getting some insight regarding a company’s capability to manage your life insurance assets.
- A.M Best – For measuring a company’s financial strength from a scale of A++ to D
- J.D. Power – For measuring a company’s customer satisfaction, buyer behavior, and product quality from a scale of 5 (best) to 2 (everything else).
- BBB – For measuring a company’s customer service based on consumer feedback
Note that these tables are strictly meant to show the current leaders in each respective rating index and not meant to be the sole basis for choosing your insurance provider. While helpful, there are other important factors that you should consider before getting a life insurance (more on this later).
Top 5 Life Insurance Companies with A.M Best Ratings of A++
|A.M Best Financial Strength Rating
|New York Life
Top 5 Life Insurance Companies based on the Highest J.D Power Ratings
|J.D Power Satisfaction Ratings
|Mutual of Omaha
|New York Life / Protective (tied)
Life Insurance Companies with BBB Ratings of A+ (in alphabetical order)
|Minnesota Life (Securian)
|Mutual of Omaha
|New York Life
We’ve also compiled a list of the top insurance companies as ranked by a few popular finance websites:
Reviews.com Top 4 Life Insurance Companies for best in category:
- Term Life Insurance: State Farm
- Whole Life Insurance: Northwestern Mutual
- Life Insurance for Seniors: New York Life
- Cheap Life Insurance: TIAA Life
Nerdwallet.com Top 5 Life Insurance Companies (based on their own 300-pt methodology)
- Northwestern Mutual (278.2 points)
- Pacific Life (271.3 points)
- Mass Mutual (271.1 points)
- Guardian Life (270.6 points)
- State Farm (269.5 points)
Things to ask yourself before getting life insurance
How long do I need the coverage to last?
This is a question for term life insurance policyholders. The answer depends primarily on the financial obligations you want to cover.
Say you want a policy that will cover your mortgage, you should consider how many years you have left to pay off your house and then buy the applicable policy length that will cover it. Same goes for providing for your children until they are old enough to take care of themselves.
How much in monthly premiums can I afford?
You have to be realistic here and determine how much exactly you can set aside for premiums on a regular basis. Note that you’ll be paying these for a long time, so consider both your current and future income and make sure paying them off won’t be too difficult given your financial situation.
Note that your age and health when you purchase the policy will be the main factors considered by your insurer in assessing the price of premiums.
How much life insurance should I buy?
This question gets asked a lot. Most financial experts will tell you that it’s typically only an issue if you flat out can’t afford the premiums. In general, it’s “hard” to have too much life insurance.
Common advice for how much life insurance you need is to start with 10 times your current income. Some consider how much they will earn in the next 5 or 10 years, then come up with an estimated figure that should provide enough coverage.
Start by adding up your unpaid expenses, combining mortgage, all loans, and other major expenses. Then, factor in your income. Determine how much will be enough to replace your salary for a specific amount of time. The final figure should give you a rough estimate of the amount you need.
If you’re still unsure about how much life insurance to buy, it might be a good idea to consult with a professional. They can walk you through the ins and outs of life insurance and come up with a policy that’s tailor-fit for your needs.
Do I want to utilize life insurance as an investment vehicle?
This is a big question, as this will determine if you will go with term, whole or universal life insurance. As we’ve shown above, term life is essentially your no-frills life insurance. If you think you’ll only need coverage for your beneficiaries and nothing else, then term life is probably your best bet. It’s the cheapest out of all options.
On the other hand, some people see value in the lifetime coverage and the cash value feature of whole and universal life insurance. For example, if you’ve already maxed out your investment options, the investment capabilities can provide another avenue for wealth building. Plus, the loan/withdrawal option could come in handy in tough financial situations.
In the end, it’s all about getting the right type of policy based on your needs and investment strategy.
3 Tips for Choosing a Life Insurance Company
Each of us has our own methods when it comes to a purchasing decision. Choosing a life insurance company and policy is no different. You have to be diligent and consider the most important factors associated with the type of product you are buying.
Determine what you need then check out what’s available
Not all companies will offer the same set of insurance products. Bigger ones tend to have a wider selection, though it doesn’t necessarily mean it’s better. The first step is to decide which type of life insurance you need (term, whole, or universal) and then look at some of the most popular choices using the tips mentioned on the next bullet.
Shop around and compare
The three rating companies we provided above should be a good place to start for checking a company’s financial strength, customer feedback, and overall customer service and experience.
Note that this is just but one factor in choosing your insurer. In fact, you’ll see several companies rated with the same scores. What to do then, you ask? You might want to consider the following features/options to differentiate them from each other:
- Available riders
- Accelerated death benefit
- Do they offer the option to convert
- Work with an independent advisor
Work with an independent advisor
Financial advisors are experienced and knowledgeable when it comes to life insurance products. They can assess your current situation, ask what you’ll need from the policy, and come up with a recommendation based on several factors which may include some of the scenarios we mentioned above. The bottom line is, you’ll likely be in a better position versus doing research on your own based on the fact that they specialize in these types of concerns.
What are your thoughts about getting the best life insurance? Is it the same with some of the ideas we mentioned here? We’d love to hear from you—let us know in the comments below!