Life Insurance: Policies, Cost and Best Companies

A life insurance policy pays out a sum of money to your beneficiaries after you die.
Written by Georgia Rose
Reviewed by Tony Steuer

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Are you looking for the best life insurance policy for you and your family but unsure where to start? Read our life insurance guide to learn more. We break down the types of coverage available, the costs and the best companies in the business.

What is life insurance?

A life insurance policy is a contract between you and an insurance company. In exchange for regular payments, called insurance premiums, the insurer pays out money after you die. This money goes to the people you choose as beneficiaries — usually children, a spouse or other family members.

A life insurance policy 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.

Top reasons to get life insurance

The main purpose of life insurance is to replace your income. However, there are other motivations to buy coverage. Here are five top reasons people get life insurance policies, according to a NerdWallet study:

Types of life insurance policies

The two main types of life insurance are term and permanent. Term life policies cover you for only a set period of time, such as 10 or 20 years, while permanent life insurance can last your entire life.

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Life Insurance illustration of mother with young child

What is the best life insurance policy for me?

To help you decide which type of life insurance policy is best for you, first ask yourself these three questions:

  1. How much can I afford to spend every month? It’s important to find a policy that fits within your budget. If you miss payments, the insurer may cancel your policy, leaving your beneficiaries without a payout. Term life is typically cheaper than permanent life insurance, and larger coverage amounts typically cost more than smaller ones. So, if your budget is tight, a term life policy may be a good fit.

  2. How long do I want the policy to last? If you need a policy to cover only a set period of time, consider term life. However, if you need a policy that’s likely to last your entire life, explore permanent coverage like whole life.

  3. What financial obligation is the death benefit covering? If you’re getting life insurance to cover burial expenses, you’ll likely need a small whole life policy because it typically offers lifelong coverage. But if you want a policy to replace your income during your working years, a 20-year or 30-year term life policy may be a better fit.

How much life insurance do I need?

To figure out how much life insurance you need, think about your financial obligations now and in the future. Then, aim to take out a policy to match them. Use our coverage calculator to estimate your coverage amount.

Although you may have some coverage through your job, it’s generally a good idea to have your own life insurance policy as well. Group life insurance policies through work aren't typically enough to meet your family’s financial needs and can end if you leave the job.

How much does a life insurance policy cost?

Life insurance is cheaper than you might think. The average life insurance rate for a 40-year-old in excellent health can be as little as $26 a month for a 20-year term life policy with $500,000 in coverage, according to Quotacy, a life insurance brokerage.

Rates can vary among insurers — sometimes significantly — so it’s a good idea to compare life insurance quotes from several companies before you buy.

Average cost of a term life insurance policy: November 2022

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

Age

Average annual rate for men

Average annual rate for women

30

$224

$189

40

$335

$284

50

$826

$645

60

$2,362

$1,670

70

$9,297

$8,204

Source: Quotacy. Lowest three rates for each age and risk class averaged. Data valid as of October 19, 2022.

Average cost of a whole life insurance policy: November 2022

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

Age

Average annual rate for men

Average annual rate for women

30

$4,690

$4,143

40

$6,997

$6,122

50

$10,800

$9,508

60

$17,735

$15,517

70

$30,462

$27,398

Source: Quotacy. Lowest three rates for each age and risk class averaged. Data valid as of October 19, 2022.

How are life insurance premiums calculated?

Life insurance premiums are typically based on your life expectancy, which equates to how likely it is the insurer will have to pay out a claim. The higher the chance of paying a claim, the higher the premiums.

To estimate your life expectancy, each life insurance company weighs factors like your health, family health history, lifestyle and driving record.

Two of the main factors that affect your life insurance premium are your age and health.

Two of the main factors that affect your life insurance premium are your age and health. So, the younger and healthier you are when you apply for coverage, 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, and prices for the same condition vary between insurers. 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. However, because the insurer can't estimate your life expectancy as accurately with limited information about you, the rates for these types of policies can be higher.

🤓Nerdy Tip

If you’re healthy, saying yes to a medical exam gives the insurer a more complete picture of your health and could lower your rate.

Best life insurance companies

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.

Insurance company

NerdWallet rating

Policy types

Term, whole, universal and variable universal.

Term.

Term, whole and universal.

Term and whole.

Term, whole, universal and variable universal.

Term, whole, universal, variable universal and indexed universal.

Term, whole and universal.

Term, universal, variable universal and indexed universal.

Term, whole, universal and variable universal.

Term, whole and universal.

Find the right life insurance plan for you
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Life Insurance illustration of mother with young child
Frequently asked questions

In general, you need life insurance if anyone depends on you financially. For example, if you’re the breadwinner, a parent, a homeowner or someone with co-signed debt, you may need coverage.

The amount of life insurance you need is based on your current and future financial needs. When calculating your coverage amount, consider your current and future financial obligations, such as income, debts and daily expenses.

The average life insurance rate is $26 a month, according to Quotacy. This rate is based on a $500,000, 20-year term life policy for a healthy 40-year-old. The average monthly life insurance rate for a $500,000 whole life policy is $547.

Term and permanent life insurance are the two main types of coverage. Term life is temporary and lasts only a set period of time. Permanent life insurance policies typically last your entire life and include an investment component. Whole life and universal life are types of permanent coverage.

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