If you’re like most people, finding the best life insurance isn’t exactly your idea of fun. But if you have loved ones who rely on your income, the right life insurance can protect them in the unfortunate event of your death.
Life insurance doesn’t have to be that expensive either, although people habitually overestimate its cost. Millennials estimated the cost of life insurance as five times its actual price, according to LIMRA’s 2018 Insurance Barometer Study.
Luckily, selecting and buying a life insurance policy doesn’t have to take a lot of time. There are many places you can start your application online. Almost half of adults researched purchasing life insurance online in 2018, according to the LIMRA survey. The trick is to find the best life insurance companies, so that you know you’re getting the most appropriate protection for the right price.
Important Points to Know About Life Insurance:
The two most common types of life insurance are term life and whole life. A term policy expires after a set period of time, while whole life insurance is permanent and accumulates a cash value that consumers can borrow against.
Many financial experts recommend term life insurance for the average family, since that is adequate for most needs.
Whole life insurance is often sold as an investment, but it comes with much higher premiums than term policies. And if you simply want to invest your money in the stock market, buying low-cost index funds is a cheaper way to go.
Most life insurance companies will require you to take a free, in-home medical exam as a part of the application process.
There are many ways to estimate how much life insurance you need, such as purchasing a policy worth 10 to 12 times your income, or estimating the expenses and debts that need to be covered if you die with those obligations.
Not everyone needs life insurance — if no one would be harmed financially by your death, it may not be for you.
The 5 Best Life Insurance Companies
AIG Direct: Best for financial strength
Health IQ: Best for health-conscious people
Bestow: Best for no medical exam
Ladder: Best for flexible coverage
American National: Best for add-on rider options
Life Insurance Company Reviews
You have a lot of options when it comes to choosing a life insurance company. Look beyond premium prices — it’s important to consider a wide range of factors, such as the company’s financial standing, customer service, price, and more.
AIG Direct Review
AIG Direct is a relatively new life insurance company, having started in 1995. Since then, it’s grown rapidly into one of the largest life insurance companies around. AIG Direct is accredited by the Better Business Bureau, where it has an A+ rating, and it also maintains an A rating from A.M. Best.
AIG Direct offers a full line of life insurance products, including universal life insurance, whole life insurance, accidental death insurance, and more. Its most popular option is term life insurance, where you can purchase a policy from 10 to 30 years. AIG Direct offers three different versions of term life insurance: level (or standard), renewable, and convertible, which allows you the option of trading your policy in for a permanent life insurance policy when it expires.
The company also provides a range of different riders, which are optional add-on products that can help customize your policy. For example, you can choose a “quality of life” rider that allows you to start drawing from your insurance before you pass away if you’re ever diagnosed with a critical, chronic, or terminal disease.
Health IQ Review
If you’re an avid exerciser, Health IQ may be a good option for you. This company is actually an insurance agency, and it offers special rates on life insurance to health-conscious people through the use of an innovative, proprietary number also known as your Health IQ.
Your Health IQ is generated by a quiz that was developed by leading experts and researchers to gauge your own knowledge of fitness. Rather than asking questions about how much you exercise, how much you weigh, etc., it asks you questions that only someone who routinely works out would know the answers to. The company has conducted research on how your score correlates with your risk of death at various ages, and then uses this information to help you qualify for up to a 41% discount off of standard life insurance rates. You can also qualify for lower rates by proving that you’re active, such as by participating in a competition or running a mile within a certain amount of time.
Health IQ has an A+ rating from the Better Business Bureau. Customers also rave about Health IQ’s good customer service from friendly agents, part of the reason why it also has a five-star rating on Trustpilot.
If the idea of needles and medical exams makes your squeamish, Bestow offers a workaround. Bestow works directly with one company, the North American Company for Life and Health Insurance, which itself has an A+ rating from A.M. Best. Bestow’s major selling point is that it uses proprietary algorithms to judge your health level without the need for a medical exam. That means no nurses, no needles, and no handing your biological samples over to a faceless corporation.
Being able to apply for life insurance without a medical exam has another added benefit: it’s a lot faster. It can take weeks to go through the full underwriting process for a typical life insurance policy, but with Bestow’s exam-free application, you may be able to finish applying for a policy in as little as five minutes. It’s a business model that plenty of people are happy with, as reflected by Bestow’s A+ rating with the Better Business Bureau. But note that this convenience may come at a price: you may be able to qualify for cheaper rates on life insurance by going through a medical exam with another insurance company, although it’s still worth it to get a quote from Bestow to see if this applies to you.
Bestow only sells term life insurance in two flavors: short term life insurance for two years, or longer term life insurance for either 10 or 20 years. That’s a smaller offering than many other life insurance companies, which typically also offer permanent or whole life insurance.
One of the wrinkles with term life insurance is that while it’s the cheapest option, your insurance needs may change over the course of your term length. For example, you might pay off some big debts, which could decrease the amount of life insurance you need, or give birth to a child, which would increase it. While you can always buy more insurance, you can’t buy less—unless you go with a life insurance company like Ladder.
Ladder only sells term life insurance policies from 10 to 30 years. It works differently from other life insurance companies in that you can change the amount of coverage you have at any time with just a few clicks of the mouse and without having to pay any additional fees. What’s more, the price you pay for a given insurance amount won’t ever change during its term with Ladder’s “Price Lock Guarantee.”
To offer this life insurance, Ladder has partnered with Fidelity Security Life Insurance Company, which carries an A.M. Best rating of A. If you opt to have your policy renew at the end of its term, the policy will be underwritten by Hannover Life Reassurance Company of America, which carries an A.M. Best rating of A+.
American National Review
The American National life insurance company isn’t the flashiest one out there. After all, it’s an old-school insurance company, having been founded over a century ago in 1905. Still, it offers a more robust offering of life insurance products than most, and comes with an A rating from A.M. Best.
You can buy term life insurance as either short-term annual policies, or longer-term policies lasting from 5 to 30 years. American National also offers whole life insurance policies, universal life insurance policies, guaranteed universal life policies, among other options.
The company also offers a wide range of optional riders. For example, you can purchase disability riders, accelerated benefit riders, and guaranteed cash-out riders to help ensure peace of mind.
How We Found the Best Life Insurance Companies
The best life insurance companies offer measurable advantages over the competition. Here’s how we selected our winners:
A.M. Best Rating of A or Better
Life insurance works a bit differently than other types of insurance because it’s a long-term commitment. You don’t want to lock in your premium now, only to have the life insurance company fold later. That’s why we selected companies that have a strong financial footing, as measured by A.M. Best, a credit rating company for insurance companies. Companies that have an “A” rating or better are among the most solid life insurance companies you’ll find, which can help give you peace of mind that the company will be around to pay claims for the long term.
High Better Business Bureau Rating
Similarly, you don’t want to choose a company that’s going to make your life a hassle. We selected companies that are accredited and have a positive rating with the Better Business Bureau. That way you can rest assured you’ll deal with friendly customer service, fair terms, and, if they need to file a claim, your loved ones won’t have a difficult process.
Unique Business Models
Even with high financial and Better Business Bureau scores, there’s not a lot to differentiate many of the standard life insurance companies out there. Part of this is a relic of the big-name, legacy life insurance companies that have been around since the 1800s and may be slower to evolve than their newer, more nimble competitors. That’s why we also placed an emphasis on including more recent companies, which still generally partner with older, time-tested life insurance companies to provide you with a life insurance product that can better meet your needs.
How much life insurance do I need?
It’s important to buy the right amount of insurance. Too little, and your loved ones won’t be fully protected. Too much, and you’ll be overspending for years to come. Luckily, there are a few different methods for deciding how much to buy.
Rule of Thumb: 10 to 12 Times Your Income
At a bare minimum, many financial experts recommend a quick back-of-the-napkin calculation: 10 to 12 times your annual income. For example, if you make $50,000 per year, you’d need to purchase $500,000-$600,000 worth of life insurance.
This is a good starting point for most people, but realize your actual needs might be more or less than this amount. For example, if you’re debt-free with no children and your spouse earns more than you do, you may not need as much life insurance as this. That’s why many experts recommend crunching the numbers as a better approach.
Tally Up Your Financial Obligations and Savings
Unless you’re getting fancy with high-net-worth estate planning, most life insurance has a specific purpose: to provide financial support for your loved ones upon your death. For most people, that generally means paying off any debts that you may owe, paying your children’s college tuition (if applicable), and providing a supplemental income to keep your family afloat in the absence of your regular paycheck.
You may also consider funding your funeral expenses, budgeting enough money for your spouse to take bereavement leave without having to worry about going back to work immediately, and including the costs of raising a child until age 18.
Example: The Smiths
As an example, let’s consider the Smiths, a hypothetical family with a set of twins and two working parents who each earn $50,000 per year. If the Smiths have $500,000 worth of mortgage debt, $10,000 worth of car loans, and $50,000 worth of student loans, their total debt is $560,000. The Smiths also want to save $20,000 each for their kids’ college educations, and expect that a funeral would cost $10,000.
Thus, the Smiths tally up their financial obligations: $560,000 of debt, $40,000 in anticipated college savings, and $10,000 in funeral expenses, for a total of $610,000. In addition, the Smiths want to provide enough income for the other spouse to live on for a full five years if they choose (add on $250,000), and enough money to raise their two children to age 18, from their current age of five. The USDA estimates that it costs $14,000 per year to raise one child, so the Smiths will need an additional $364,000 to raise their children.
Adding up all these expenses, and the Smiths estimate that they’ll each need a life insurance policy worth about $1.25 million.
Use a Life Insurance Calculator
You can also take a shortcut and use a life insurance calculator, which are available for free on many life insurance company websites. If you opt for this route, try using several calculators and taking the average life insurance amount so that you’re getting the best estimate.
Using a life insurance calculator can provide you with a better estimate than a rule of thumb, but it may not be as accurate as calculating how much you need yourself, or even asking for professional help. Still, it’s a reasonable alternative.
Ask a Financial Advisor or Life Insurance Agent
The best way to find out how much insurance you need is to ask a life insurance agent, or even better, an independent financial advisor. While agents are essentially salespeople for life insurance policies, they may still be able to help you find a policy that meets your needs.
Financial advisors often receive a commission based on the investments they manage for you, but it’s also possible (and often preferable) to find a fee-only financial advisor. These financial advisors provide unbiased financial advice for a flat fee, and they can help you determine how life insurance fits into your larger financial picture.