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Your family is unique — your life insurance should be, too.

Life insurance isn’t the most pleasant topic to think about — but when you die, your family might be relieved you signed up for a policy.

Shopping for life insurance during the pandemic? Be aware that insurers may have changed their products and policy applications. For the latest information on how to cope with financial stress during this emergency, see NerdWallet’s financial guide to COVID-19.

What is life insurance?

A life insurance policy is a contract with an insurance company. In exchange for regular premiums you pay over time, life insurance pays out after your death to the people you choose as beneficiaries — usually children, a spouse or other family members. It’s an important safety net if anyone depends on you financially. A life insurance payout can be used for debts such as a mortgage, to replace your income or provide funds for college tuition.

Types of life insurance

There are two main types of life insurance:

Term life insurance covers a limited time period, such as 10, 20 or 30 years, and doesn’t build cash value. 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.

Permanent life insurance costs more than term but offers additional features like cash value that you can borrow against, which grows over time. Whole life is the best-known form of permanent life insurance. Other types include universal, variable and variable universal.

» MORE: The differences between term and whole life insurance

Life insurance rates

The cost of life insurance depends on many factors, including your age, your health and how long the policy will last. Here’s a look at average annual life insurance rates for healthy men and women at different ages and for different policy lengths.

2020 average life insurance rates

Age at purchase Policy amount 20-year term 30-year term Whole life
Annual premiums using an average of three lowest prices available in each category for men and women in excellent health. Source: Quotacy.
Male, 30 $250,000 $148 $220 $1,829
$500,000 $226 $362 $3,600
$1 million $370 $639 $7,123
Female, 30 $250,000 $131 $189 $1,626
$500,000 $193 $302 $3,195
$1 million $296 $520 $6,313
Male, 40 $250,000 $209 $336 $2,735
$500,000 $341 $595 $5,412
$1 million $590 $1,109 $10,747
Female, 40 $250,000 $180 $276 $2,441
$500,000 $291 $481 $4,825
$1 million $493 $888 $9,573
Male, 50 $250,000 $457 $802 $4,244
$500,000 $835 $1,508 $8,432
$1 million $1,589 $2,889 $16,787
Female, 50 $250,000 $365 $612 $3,790
$500,000 $654 $1,138 $7,522
$1 million $1,149 $2,119 $14,967

Who needs life insurance?

NerdWallet recommends life insurance if anyone depends on you financially. This includes parents, homeowners with a mortgage, business owners and others.

For many people, the best option is term life insurance, which lasts for a limited time. Others may need permanent insurance, which doesn’t expire as long as premiums are paid.

Who? How life insurance can help Best option
Breadwinner Life insurance can help replace your lost income so your family can continue to pay for everyday expenses. Term life insurance can cover your working years.
Stay-at-home parent Life insurance would cover the cost of paying for services the parent does for free, such as child care. Term life can cover the years your kids are young.
Divorced parent A policy could cover the support payments that a divorced parent makes. Term life can cover the years of support payments.
Parent of a special-needs child Life insurance can make sure the child will have financial support after a parent dies. Permanent life insurance provides a payout no matter when you die.
Homeowners with a mortgage A policy can cover mortgage payments, so your family doesn’t have to move. Term life insurance can match the years of a mortgage.
Business owner Life insurance can pay off business debts, help heirs to the business pay off estate taxes, or fund a buy-sell agreement that allows a business partner to buy out your share. Choose term life or permanent life, depending on the issue to be solved.
Someone with co-signed debt  Life insurance could cover the cost of student loans or other debt. Term life can be timed to end with the debt payments.
High-net-worth individual Life insurance can provide funds for heirs to pay estate or inheritance taxes. Permanent life insurance is best for those with estate tax concerns.
Someone who wants to provide an inheritance If you don't have a lot of wealth, life insurance can provide a small inheritance to heirs. Permanent life insurance will pay money for the inheritance, no matter when you die.
Investor who has maxed out other retirement plans Life insurance with a cash value component can provide a supplemental source of retirement savings. Permanent life insurance builds cash value that you can access.
People concerned about paying for their own funerals Small life insurance policies can pay for your funeral and final expenses. Permanent life, such as final expense insurance, will pay out whenever you die.

 

Term life insurance is sufficient for most families. It costs less than whole life, and you can choose a term that matches the years when people depend on you financially. By the time the term ends, you may 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.

However, whole life insurance and other forms of permanent coverage can be useful if you want to provide money for your heirs to pay estate taxes. Permanent life insurance can also be useful if you want to spend your retirement savings but still leave an inheritance or money for final expenses, such as funeral costs.

How to buy life insurance

Life insurance isn’t a purchase you make often, so you may not know where to start or how to get life insurance quotes. Here’s how to get the coverage you need.

Determine how much life insurance you need

Consider your family’s needs and priorities when figuring out the amount of life insurance to purchase. Do you have debts to pay? Will your family have to replace your income to meet everyday living expenses? Do you want to fund a college education for your children?

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 employer likely isn’t enough to meet your family’s financial needs and typically ends if you leave the job.

Debt and income replacement calculators can help you decide how much life insurance you need before you get quotes. Here’s a calculator to get you started.

Evaluate life insurance companies

Life insurance is a long-term purchase, and you want a company that can pay claims many years in the future. The biggest life insurance companies have long track records, but some smaller insurers are solid contenders as well. Check out insurers’ financial strength through ratings agencies such as A.M. Best or Standard & Poor’s. NerdWallet recommends avoiding insurers with an A.M. Best rating of B or lower, if possible.

NerdWallet’s ranking of the best life insurance companies also gives points to companies that have higher customer satisfaction scores and fewer complaints to state regulators.

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.

Gather info you need

Collect the information you need to apply for term life insurance or a permanent policy before you start the application process. You’ll likely need to provide information 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 data sources, such as MIB Group, which collects data on medical conditions, your driving record and hazardous hobbies.

You’ll need to choose beneficiaries, who will receive the payout when you die. Be sure you have their Social Security numbers and dates of birth.

You also may 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.

Compare life insurance quotes

The best way to save on life insurance is to compare all your options. To find the best rate for you, be sure to compare life insurance quotes from several companies. Prices can vary widely, depending on the type of coverage you choose and personal factors such as your age, gender and health.

» MORE: 5 clever hacks for buying life insurance

If you can, apply when you’re healthy

Life insurance companies use life expectancy as the basis for determining rates. Anything that could shorten your life expectancy could lead to a higher price.

So it’s smart to buy life insurance as early as possible, when you’re young and healthy. If you wait, your life insurance quotes will increase solely because of your age. If new health problems arise, your rates could go up even more.

You can still get life insurance if you have a medical condition. Insurance companies vary in how they view pre-existing conditions, and some types of life insurance don’t require a medical exam.

Life insurance FAQ

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 coverage you need depends on how much money you want your beneficiaries to receive. 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 deciding how much life insurance you need.

What is the average life insurance rate?

The average life insurance rate is $26 a month, based on 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 40-year-old female is roughly $400 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 mortality rates 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 rating agencies like A.M. Best or Standard & Poor’s. NerdWallet recommends looking for an insurer with an A.M. Best rating of B+ or better. 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.

What do I need to apply for life insurance?

When applying for life insurance, you’ll likely need to provide information about your health and even 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?

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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Lisa Green

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