Why Buy Life Insurance?
The top performers in our review are MetLife, the Gold Award winner; Fidelity Life, the Silver Award winner; and Nationwide, the Bronze Award winner. Here’s more on choosing life insurance to meet your needs, along with detail on how we arrived at our ranking of the ten best life insurance companies.
Benefits of Life Insurance
One's own mortality is not something most of us like to think about, but you and your family can benefit from thinking about it now to find a good life insurance policy to help you support your family, honor your business agreements or pay off debtors. Life insurance can help cover costs such as your mortgage, credit card debt, burial expenses, medical bills and legal fees. If you have children, it can help pay for their daily life expenses and education. Some life insurance options also help you create a cash value investment that you can borrow against for things like a down payment on a house or to pay large medical bills.
Life insurance is most beneficial for those who have children, a non-working spouse or others that depend on them. It is especially beneficial if you have a disabled child who needs care long-term care. Older persons who have paid off their home and have grown children can benefit from at least having their burial costs covered so as to not burden the family. Some individuals are required by law because of a divorce degree or business agreement to have life insurance, so obtaining a good life insurance policy is not optional but mandatory. Whatever your life situation, you most likely can benefit from some sort of life insurance policy.
What is the Difference Between Term and Permanent Life Insurance?
Term and permanent life insurance plans are quite different. The largest difference is that term life does not accumulate a cash value (while the insurer is alive) while permanent accrues a cash value that can be utilized during the insurer's lifetime. Term life will pay death benefits during the term (often, the terms are 10, 20 or 30 years) provided that it is an active policy at the time of death. Permanent life insurance, is not for a specific term, and can be carried throughout your life. It involves not only the insurance premiums but also a savings or investment portion (this is the portion of the policy that gains cash value), also known as a cash value account. Permanent life also provides death benefits, and because of the investment portion, the monthly premiums are often higher than those for term life.
What Are the Types of Life Insurance?
This is the most common type of plan and the one that most employers offer employees as a benefit. Often, term life is an inexpensive life insurance option, and the premium rate is locked in for the duration of the plan. This is a good option if, for example, you plan to be debt free when you retire and you just want coverage until your children are of age.
This is a permanent life insurance option that can be kept for the rest of your life. The monthly premiums are at a set rate, and it includes a tax-protected investment or savings portion. As your cash value accumulates, you may borrow against it, surrender your policy for a payout or collect dividends. Premiums are often high, but the cash value benefits can be quite helpful.
Universal can be more difficult to understand than term or whole policies. The briefest description is that it is flexible, and for this reason, it's often referred to as adjustable life insurance. You can adjust your death benefit amount, when you pay your premiums and how your benefits are paid out. It can accrue cash value, but the balance is not tax-protected and interest, as growth, may apply. This flexible type of insurance plan may be suitable for those who may not be able to predict their future life circumstances, so they can change it as they go.
This is a permanent type of life insurance and, often, is one of the more expensive options because it lets you control, to an extent, your investments. For example, you can allocate that a certain portion of your cash value account go to an investment portfolio that may include stocks, bonds or various funds. However, you cannot withdraw funds, and the higher investment risk can make the actual death payout unpredictable. This could be a good option for those who already have other investments they are utilizing for their personal use.
Variable Universal Life
This is basically variable life insurance that is flexible, like universal life insurance. This type of insurance provides death benefits and allows the policyholder to create sub accounts similar to mutual fund accounts. The contract owner can then decide how much goes into the separate investment accounts. Similar to universal policies, when premium payments are due is flexible, and the plan will not lapse unless there is not enough cash value to pay the premium balance. Before acquiring this type of life insurance, you may want to compare the cost of variable universal life premiums against what you would pay for term insurance and your investments separately to determine what the best option is for you.
Life Insurance: What We Evaluated, What We Found
While your unique circumstances will dictate your premiums and the type of insurance you'll want to purchase, we provided sample pricing to help you budget insurance costs. We also examined the process your beneficiaries, including your loved ones and/or any business partners, might have to go through to submit a claim. While all the insurance companies we reviewed demonstrate a high financial rating, we also gathered information from the four largest rating companies – A.M. Best, Fitch, Moody's and Standard & Poors – to show the companies that are well rated.
To create our insured profiles we used to secure price quotes, we considered the age at which one might want to purchase life insurance as well as the health status of the average American. Most of the sample quote rates you see in the marketing literature is based on the ideal health profile, which is usually a healthy female aged 30 to 35. However, nowadays nearly 70 percent of adults in the U.S. are considered overweight and around 20 percent use tobacco products.
We gathered baseline quotes for a healthy male and female aged 35. We used the average male and female height (5'4" and 5'9") and a weight that demonstrated a normal body mass index (125 lbs. and 155 lbs.), or BMI, a height-to-weight calculation that is indicative of an individual's body-fat levels. A high BMI is associated with a higher level of body fat and a predisposition to certain metabolic conditions, such as diabetes and heart disease.
We then took the same profiles and added separately two health issues: one being overweight, but not obese (166 lbs. and 195 lbs.); and one for using tobacco products. For the price quotes of a hypothetical overweight adult, we used the average weight for adult Americans, which is considered overweight.
Because geographic location is not as major an influencer to the cost of life insurance as health issues, we used the zip code of our corporate offices in Ogden, Utah. As you will see in our price comparisons, these two health issues show how much your rates can change based on lifestyle choices. It also shows how much you can save by improving your health.
How Much Coverage Do I Need?
Unlike other types of insurance, life insurance is not required unless it is legally enforced because of a divorce decree, business contract or other legal agreement. But it can greatly help your family should you pass and leave them with debt, funeral costs and the loss of your income.
Most insurance sites offer coverage calculators to help you determine how much coverage you may need. At the bare minimum, you'll most likely want to cover your debts and funeral expenses. If you can afford a higher premium, you may also want to coverage that helps your family maintain their standard of living and pays for your children's education.
Some factors to consider when estimating how much insurance you want to acquire include:
- Spouse's or partner's income or ability to earn (Some may only choose to provide about a year of replacement income until the spouse can get through the legal and estate issues and acquire employment.)
- Age and number of children (Young children may need daycare, private school and health care; older children may only require a few years of expenses covered.)
- Cost of funeral and last wishes (Best to control costs by having a written end-of-life plan; the average funeral costs about $7,000.)
- Last medical bills (Even the best health insurance plan will not pay 100 percent.)
- Long-term care of a disabled child or spouse (You'll also need written documentation specifying how you want them cared for.)
- Mortgage and other debt (You can even create agreements to have specific debt paid off as part of your life insurance policy in some cases.)
- Business debt and agreements (You may have legal agreements with your business partners or you don't want the business to fail after your death.)
- Cost of college or children's education (Although college tuition would be for a grown child it could help them succeed in the long run.)
- Inflation (Factor in at least 3 percent inflation per year and also consider whether your family may have to move to a higher standard-of-living area to be closer to family)
- Legal and tax expenses (estate, property taxes, title transfers, executors, trusts and more)
- Maintaining standard of living (If you want your family to maintain the same lifestyle they would with your income.)
- Pets or livestock (with written documentation on how you wish for them to be cared for)
- Charities (Some individuals wish to leave funds for their favorite charity or religious organization.)
As you can see, the figure for what your beneficiaries may need can add up to well over $200,000, especially if you have a mortgage. Even if your employer offers $50,000 to $150,000 for free, you may benefit from acquiring a supplemental life insurance plan to meet all of your family's needs. After you have outlined what you think your financial needs will be, you'll want to meet with a financial advisor to put together your plan, including legal documents, like a will and trust, or a buy-sell agreement if you're an owner of a business, that you might need. To learn more, see our articles about life insurance.
While you can create a customized life insurance plan as well as a will and trust, some companies offer specific types of policies that you might be interested in. For example, some insurance companies offer family plans that cover your children for a reduced rate or for free. Survivorship policies can be created to cover two persons, and the plan will be paid out to the survivor. This type is often used for married couples or even business partners. In addition, some insurance companies have resources to help you put together a plan to care for a special-needs child or spouse. Yet another option is long-term care insurance. Long-term care is highly recommended since people are living longer after retirement and health care costs are high. However, it is best to obtain this type of insurance while you are still young and healthy. In general, a life insurance plan can be created to protect any type of financial situation.
How to Obtain a Life Insurance Quote
In most cases, you can obtain a quote online using your basic health information; however, some insurance companies may require you to contact a local agent. To obtain an independent life insurance policy, in most cases, you will need to submit to a health screening. Usually an insurance company representative will visit you in your home or office to perform the exam. You'll need to give them accurate information about your previous or existing health issues as well as activities that may put you at risk, such as piloting a plane or skydiving. You will also likely be asked questions relating to your general mental health such as your mood, stress levels and any past or current mental health diagnoses.
You'll want to refrain from alcohol, nicotine, caffeine and stressors before the exam this will help you achieve optimal results from your urine, blood and blood pressure tests. Once your results are evaluated, you'll receive your actual quote and policy information. If you have known health issues, you'll want to obtain several quotes since all insurance companies rate health issues differently. If they decide not to provide you with coverage, you'll want to contact another insurance company, improve your health or investigate a no medical exam-type policy.
How Your Premiums Are Determined
Life insurance premiums rates are heavily influenced by your age and health, more so than geographic location. Your weight and whether you smoke are two of the biggest factors, since obesity and smoking are associated with high mortality rates. Most insurance companies look at other types of indicators, such as gender, blood pressure and cholesterol levels. Physical exams also might include blood and urine tests to look for indicators for diabetes, hepatitis, HIV, kidney problems, nicotine levels and illicit substances. Maintaining a good weight and BMI as well as good, overall health will greatly decrease your premiums.
If you are wondering how a life insurance company may view your health, you may want to check out John Hancock's website, it provides a vitality age calculator that tells you what your "age" is based on your height, weight, blood pressure, and other factors. For example, if you are 42 years old and smoke tobacco, your "age" may be something like 52. And as uncomfortable as that might be to think about, that is how insurance companies consider you when assessing your risk of mortality. The calculator also gives you some ideas about how you can improve your health to lower your rates.
High-Risk Health Insurance Options
Fortunately, there are options for those who fall into high-risk categories or those who have overcome a major health issue. Your first option is to see what coverage you may be able to obtain via standard life insurance with perhaps a higher premium. If you have recovered from a serious illness such as cancer, but are in full remission, you still might be able to obtain a standard policy.
Even if you are older and cannot pass a medical exam, there are still options, albeit costly ones, available to you. Although it might be tempting, it is best not to fib with your insurance company to get a lower rate. If you are found to provide false information when you signed up, it can be considered fraud, and your death benefits might not be paid out. You are better off paying a higher premium and being honest upfront.
High-Risk: Temporary Health Issues
While you cannot change your age, other health issues may be temporary. If you have recovered from a major illness and are healthy now, you likely can get a standard life insurance policy. If you are obese and/or smoke, you can still obtain insurance in most cases, although often at a higher rate. However, losing weight and quitting smoking can greatly lower your rates.
Most insurance companies allow you to be considered a non-smoker if you have quit tobacco entirely for a duration of two years or more. If you use nicotine via an e-cigarette or vape device, many insurance companies will give you the smoker rate if nicotine appears in your blood tests. Some insurance companies may also offer some lenience for those with high blood pressure or cholesterol if it is easily controlled with medication. Again, your rates may be higher, but these situations are most often insurable.
High-Risk: Long-Term Health Issues
If you are over 45 and know you would not likely "pass" a standard required medical exam, you still have two options – simplified issue and guaranteed issue life insurance. Simplified issue coverage does not require a medical exam (only a few medical questions to answer), but premiums are typically two to four times higher than other policy premiums.
Guaranteed issue life insurance does not require a medical exam and you do not have to answer medical questions. In most cases, benefits are not be paid out until premiums are paid for an agreed amount of time, often a few years, or only a portion of the premiums will be paid out as death benefits. This type is often the most expensive life insurance option and should only be considered when all other options are exhausted.
Our Verdict and Recommendations
While all insurance companies factor health issues into your policy, not all insurance companies view your health the same way. For example, if you are overweight, Nationwide may be a good choice since it might not raise your rates. If you are a smoker, Liberty Mutual may be worth looking into. While Geico and Progressive do not usually provide life insurance, they may be able to generate quotes from numerous companies for preliminary rate shopping. MetLife, which was our Gold Award winner, costs more, but it appears to provide the most services to beneficiaries.
We recommend you obtain quotes from a few agencies and submit to more than one health exam to obtain the best rates. Also, consult with a trusted financial advisor, accountant and/or attorney to ensure that your paperwork is legal and that your assets are managed according to your wishes.