Life Insurance Policies, Companies and Quotes

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Apr 18, 2022

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What is life insurance?

A life insurance policy is a contract between you and an insurance company. In exchange for regular payments, called premiums, the insurer pays out money after you die. This payment goes to the people you choose as beneficiaries — usually children, a spouse or other family members. It can be an important safety net if anyone depends on you financially. Beneficiaries can use the money to repay debts, replace your income, or provide funds for future expenses like college tuition.

What are the different types of life insurance?

There are two main types of life insurance: term and permanent. Within these two categories there are various types of policies. Understanding which one is right for you can help you build a robust life insurance plan.

What is term life insurance?

Term life insurance works by covering you for a limited period of time, such as 10 or 20 years. You can choose a term length that matches your needs, and if you die within the term, your beneficiaries receive the payout. When your term life insurance expires, you can buy a new policy or reassess your options. Ideally, by the time the term ends, you no longer need life insurance: Your house will be paid down, your kids will be grown and you’ll have some money in the bank. Term life policies are often the cheapest type of coverage. In some cases, you can buy online life insurance without completing a medical exam. Term coverage doesn’t build cash value. In general, term life is sufficient for most families.

Types of term life insurance

What is permanent life insurance?

Permanent life insurance costs more than term life but offers additional features like a cash value account, which grows over time. In most cases, you can borrow against the value of this account while you’re still alive. Whole life insurance is the best-known type of permanent life. Other types include universal life, variable and variable universal. Permanent coverage can provide money for your heirs regardless of when you die. This type of insurance can also be useful if you want to spend your retirement savings but still leave money for final expenses, such as funeral costs.

Types of permanent life insurance

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How much life insurance do I need?

To figure out how much life insurance you need, think about your financial obligations. Then, aim to take out a policy to match them. Debt and income replacement calculators can help you decide before you get quotes.

Here are some expenses to consider:

  • Outstanding debts, such as a mortgage, personal loan or credit card balance.

  • Everyday living expenses, including child care, utility bills, groceries and car insurance.

  • Future expenses, like funeral costs and college tuition.

Another way to crunch the numbers is to multiply your annual income by 10, and use that as a rough estimate.

Although you may have some life insurance through your job, it’s generally a good idea to have your own policy in addition to the life insurance provided by your employer. The policy through your workplace likely isn’t enough to meet your family’s financial needs and can end if you leave the job.

How much does life insurance cost?

It’s cheaper than you might think. The average life insurance rate for a 40-year-old in excellent health can be as little as $27 a month for a 20-year term policy with $500,000 in coverage, according to Quotacy, a life insurance brokerage. Rates can vary among insurers — sometimes significantly. When setting your rate, each life insurance company weighs factors like your health, lifestyle and driving record differently. Some are more lenient than others, which is why it’s important to compare quotes from several insurers.

Average cost of term life insurance

Here are average annual life insurance rates for a $500,000, 20-year term life insurance policy for healthy applicants.

Age

Average annual rate for men

Average annual rate for women

30

$227

$192

40

$340

$287

50

$835

$652

60

$2,362

$1,673

70

$9,298

$8,205

Source: Quotacy. Lowest three rates for each age averaged, as of Jan. 16, 2022.

Average cost of whole life insurance

Here are average annual life insurance rates for a $500,000 whole life policy for healthy applicants.

Age

Average annual rate for men

Average annual rate for women

30

$4,985

$4,372

40

$7,372

$6,428

50

$11,250

$9,877

60

$18,130

$15,753

70

$30,325

$26,815

Source: Quotacy. Lowest three rates for each age averaged, as of April 8, 2022.

The earlier you apply, the better. No matter which insurer you go with, two of the main factors that affect your life insurance premium are your age and health. The younger and healthier you are when you apply, the better your life insurance rate is likely to be.

You can still get life insurance if you have a medical condition, but insurers vary in how they view preexisting conditions. Some policies, such as simplified issue and guaranteed issue life insurance, don’t require an exam. These types of policies are typically called no medical exam life insurance. But, if you’re healthy, saying yes to a medical exam could actually lower your rate. That’s because the insurer has a complete picture of your health.

Where to buy life insurance

There are a few ways to buy a life insurance policy:

Directly from the insurer. If you’ve done your own research and know exactly which policy you want, you can often buy directly from the insurer.

Through an agent or broker. Need a little help choosing a policy? That’s where a life insurance agent or broker comes in. An agent or broker can help you navigate your options, find a policy that suits your budget and gather all the documents you need to apply for coverage.

Compare policies online. Most insurance companies support online quotes. This makes it easy to shop around for the best coverage at the right price.

When you’re assessing life insurance companies, look at these three factors:

  • Financial strength ratings. These determine an insurer’s ability to pay out claims in the future. You can check out insurers’ financial strength through ratings agencies such as AM Best or Standard & Poor’s. NerdWallet recommends choosing insurers with an AM Best rating of B+ or higher, if possible.

  • Complaint ratios. Ideally, you want to choose a company with a strong track record for customer service. NerdWallet’s ranking of the best life insurance companies favors companies that have fewer complaints to state regulators.

  • Policy options. Not all companies sell the same types of policies, and some focus on specific products, such as life insurance policies for children. Narrow your choices by reading life insurance reviews and knowing the type of coverage you want before you begin comparing life insurance quotes.

Comparing life insurance quotes

To get the best price possible, compare life insurance quotes from various insurers before you buy. Make sure to compare policies with the same level of coverage, and take note of any additional features offered for free. For example, some insurers may include an accelerated death benefit rider at no extra cost, while others may charge extra for it to be added.

Insurers may provide quotes for different payment intervals, such as monthly or annual plans. Additional administrative fees are sometimes added to monthly payments, making annual plans slightly cheaper.

Life insurance quotes are estimates and do not typically match the final price of a policy. The actual cost of your policy is determined once you submit a full application and complete any necessary health requirements like a medical exam.

Once you have found the right policy, be as honest as possible when applying. In some cases, an insurer may not pay the death benefit to your beneficiaries if you have lied on the application.

Life insurance company reviews

Learn more about some of the top insurers by reading our life insurance reviews. NerdWallet ratings are determined by our editorial team and take into account consumer experience, financial strength and customer complaint data.

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How to apply for life insurance

Collect the information you need before you start the life insurance application process. You’ll likely need to provide details about your current and past health conditions, as well as your family’s health history. The insurer may need your consent to get medical records and ask you to take a life insurance medical exam. Insurers also check other sources, such as MIB Group, which collects data on medical conditions, your driving record and hazardous hobbies.

When you choose life insurance beneficiaries — the people who will receive the payout when you die — be sure you have their Social Security numbers and dates of birth. You may also have to answer questions about criminal convictions and driving violations, such as a suspended driver’s license or DUI, particularly if they happened within the past few years.

With some insurers, you can apply online and get instant life insurance. If approved, your coverage could go into effect the same day.

Common life insurance terms

You might come across these terms when you’re shopping for life insurance. Here’s what they mean.

Beneficiary: The person or people you select to get the life insurance payout when you die.

Carrier: Another name for a life insurance company.

Cash value: Permanent life insurance policies typically have an investment portion that increases in value over time. This is known as the cash value account, and once you’ve accumulated enough cash value, you may be able to borrow against your policy.

Death benefit: The amount of money the insurer will pay out to your beneficiaries, generally tax-free, when you die.

Dividend: Some insurers are mutual companies, which means they’re partly owned by their policyholders. They may pay out a sum of money to some policyholders each year based on the company’s financial performance. These payments are called dividends.

Exclusions: The circumstances in which your life insurance policy won’t pay out, such as death from a risky activity like skydiving. Exclusions vary among insurers and are listed in the policy documents.

Face value: The basic death benefit of the policy. For example, if you purchase a $500,000 policy, its face value is $500,000.

Policyholder: The person who owns the life insurance policy.

Premium: The amount of money you’ll pay to keep your life insurance policy active. With most policies, you have the option to pay monthly, quarterly, semiannually or annually.

Rider: A life insurance rider is an optional add-on that can be used to customize your coverage.

Underwriting: The process an insurer uses to gather information about you and set your life insurance premium.

Frequently asked questions
Who needs life insurance?

In general, people need life insurance if their death would place a financial burden on others. Examples include breadwinners, parents, homeowners, business owners and people with co-signed debt.

How much life insurance do I need?

The amount of life insurance you need depends on how much money you want your beneficiaries to receive when you die. Ten times your annual income is a common estimate, but rules like this are not universal and may not reflect your specific situation. Take into account your current finances and future obligations, such as income, debts and daily expenses, when calculating your coverage needs.

What is the average life insurance rate?

The average life insurance rate is $27 a month, based on a healthy 40-year-old buying a $500,000, 20-year term life policy, which is the most common length sold. That being said, life insurance premiums can vary significantly among applicants and policy types. For example, the average rate for a $500,000 whole life policy for a healthy 40-year-old woman is roughly $467 a month.

How are life insurance rates calculated?

Life insurance premiums are calculated using a variety of factors, such as age, health, driving history, policy length and coverage amount. Insurers use this information to estimate your life expectancy, and then set your premium based on the risk of insuring you.

How do I check the financial strength of a life insurance company?

You can gauge the financial strength of a life insurance company through ratings agencies like A.M. Best or Standard & Poor’s. An insurer’s financial strength can give you an idea of how reliable the company will be in paying out a future claim. This is particularly important for life insurance as these policies often have to last decades. NerdWallet recommends looking for an insurer with an A.M. Best rating of B+ or better.

What do I need to apply for life insurance?

When applying for a life insurance policy, you’ll likely need to provide information about your health and may have to complete an in-person examination. You may also be required to submit details on your lifestyle, hobbies, beneficiaries and family’s medical history. It’s worth gathering as much information as you can prior to completing a life insurance application to help speed up the process.

Which is better: term or whole life?

Cost and coverage length are the two biggest factors to consider when choosing between term and whole life insurance. Term life insurance is sufficient for most people. It lasts a specific number of years and is typically cheaper than permanent life insurance. However, depending on your needs, you may want a permanent policy, such as whole life, that covers you for your entire life and comes with a cash value component.

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Make sure you and your loved ones are covered - compare customized life insurance quotes from our partners.
Life Insurance illustration of mother with young child