How to Compare Life Insurance Options

A couple compares life insurance together.

Key Takeaways

  • Don’t rush into buying a life insurance policy; perform your due diligence in educating yourself about the overall marketplace, reviewing the different kinds of available life insurance policies, obtaining initial quotes online and narrowing down your selection of insurers.
  • Your current stage of life —and its specific load of financial responsibilities — together with your short- and long-term financial needs and goals will significantly influence your final choice for a life insurance policy.
  • Researching life insurance quotes online can give you a general idea of how much policies will cost; however, the underwriting process takes into consideration a variety of personal factors that may affect the final cost of your policy.
  • While affordability is important in researching and selecting the right life insurance policy, going with the cheapest policy may not be the best choice for your particular life situation.
  • Working with a life insurance agent or broker allows you to research quotes from a number of different insurance carriers and develop a relationship with someone who is knowledgeable about the industry and can offer you professional guidance and answer any questions that arise.

What Are the Different Types of Life Insurance?

Did you know that 52% of U.S. adults report that they own life insurance? However, 41% of American adults - both insured and uninsured individuals - admit that they lack sufficient life insurance coverage.1 So then, the first question that comes to mind may be: Who needs life insurance? The answer to that, of course, depends on your particular life situation. Buying life insurance, however, may be a financially wise decision across a broad spectrum of life stages, whether you are a young single adult starting your first job after college or are married and retired with many grandchildren to occupy your time.

If you are in the market for life insurance, how can you determine what kind of life insurance policy is right for you? Although there are various types of life insurance, all life insurance policies fall under one of two major categories: term life and permanent life. Before you can decide on what kind of policy to research, it’s important to have a basic understanding of their distinguishing features and what each type has to offer.

Term Life Insurance

Term life insurance offers you temporary life insurance coverage for a limited and specific period of time, usually for a duration of 10, 15, 20 or 30 years. When the term ends, so does your insurance. If you still want insurance after the end of your term, you may purchase a new policy. Although term life insurance does not build cash value, the premiums for term life tend to be less expensive than those for permanent life (for the same death benefit amount).

If you are looking for insurance coverage for only a certain period of time — for example, to cover the remaining 15 years left on your mortgage — term life may be a good choice. Another feature of term life is that your premiums remain fixed; they are guaranteed to stay the same for the entire term length of the policy. In addition, many term life policies have a provision that allows you to convert your term life policy to a permanent life policy. Key benefits of term life insurance are its affordability, flexibility and simplicity.

Permanent Life Insurance

Unlike term life insurance, permanent life insurance provides you with coverage for your entire lifetime. As long as you continue to pay your premiums, a permanent life insurance policy remains in force until the insured person dies. At that point, the beneficiaries will receive the death benefit payout.

In addition, permanent life policies build cash value, which can be used in a variety of ways. As the policyholder, you can decide to borrow against the accumulated cash value of the policy in the form of a loan, withdraw a portion of it, or use it to pay the policy premiums. Keep in mind that if you borrow or withdraw against the cash value and do not pay it back, your death benefit will be reduced.

Two of the most common types of permanent life insurance are whole life insurance and universal life insurance.

Whole Life Insurance

Whole life insurance policies offer you coverage for your entire lifetime while building cash value over time at a guaranteed rate on a tax-deferred basis. The cash value portion of your policy is typically only accessible while you are alive and is not included in the death benefit paid out to your beneficiaries after your death.

Because these policies cover you for your entire lifespan rather than a limited term length, they generally cost more than term life policies for the same amount of coverage. Furthermore, with a whole life policy, your premiums remain fixed and do not change over time.

Universal Life Insurance

Universal life insurance policies also offer you permanent coverage that can last your entire life as well as cash value accumulation. A universal life policy allows you to increase or decrease how much premium you pay every year. When you have more income, you can pay more into the policy; when money is tight, you can reduce the amount you pay (but you must make sure you have enough cash value to cover your monthly charges).

To maintain lifetime coverage, you typically need to build up a cash reserve when you’re young to help cover the increasing cost of the insurance as you get older. In addition, some universal life policies let you change the death benefit by either choosing to decrease the death benefit or adding coverage without having to buy a new policy. Be aware that increasing the death benefit may be subject to insurability and underwriting approval. Traditional universal life insurance offers cash value that may grow based on market interest rates; depending on conditions in the market, your return is subject to change every year.

Below is a comparison summary of term life, whole life and universal life insurance:

Temporary Coverage  Permanent Coverage
  • Lasts for a limited amount of time (usually 10, 15, 20 or 30 years)
  • Lasts for your entire lifetime with no expiration date
  • Can potentially last for your entire life (depending on how you manage the policy)
  • Fixed premiums guaranteed not to change for term length
  • Fixed premiums that remain constant
  • Flexibility to change death benefits and premium amount each year
  • No cash value accumulation
  • Accumulates cash value
  • Accumulates cash value
  • May be converted to permanent life insurance coverage
  • Option to withdraw money or borrow against policy cash value
  • Option to withdraw money or borrow against policy cash value
  • May offer the potential to earn dividends


How Do You Determine the Right Amount of Life Insurance?

Once you decide what type of life insurance is best for your current station in life, next you need to think about a coverage amount. Determining how much life insurance you need - the death benefit amount your beneficiaries would receive after your death - depends on a number of different factors:

  • Family & Dependents — The larger your family and the more dependents you have, the more coverage you may need.
  • Current Salary/Income — The higher your salary or income level, the more coverage you may need to replace lost wages in case of your death to provide for your loved ones after you’re gone.
  • Age — Someone who is young and single without family obligations would likely need less coverage than a married couple with several young children.
  • Owning a Business — If you are a business owner, you should think about how much coverage you may need to protect the future of your business and its employees.
  • Final Expenses — Having enough life insurance to cover all of your final expenses — like funeral and burial costs, outstanding medical bills and credit card debt — is important so that this burden does not fall on your family members, possibly causing a financial hardship for them.
  • Outstanding Debt — The more outstanding debt you have (home mortgage, home equity loans, car loans and credit card balances), the more life insurance you may need to cover these expenses.
  • Existing Life Insurance Policies & Assets — Consider current life insurance (for example, from your employer) and other cash and financial assets that could affect the total amount of life insurance you may still want to acquire.
  • Long-Term Financial Goals — Buying life insurance while you are young and healthy and qualify for a cheaper rate may be better than waiting until you are older and are in greater need of life insurance, like when you are married with children and have the responsibility of a mortgage. Considering your long-term financial goals may affect your current life insurance decision-making.

One helpful rule of thumb to use when estimating how much life insurance coverage you may need is the DIME method:2

  • Debt
  • Income
  • Mortgage
  • Education

The total of your outstanding debts plus your desired income replacement amount plus how much you owe on your mortgage plus your projected future educational expenses for your children gives you an estimate of how much your life insurance coverage should be.

Another approach for calculating how much life insurance you may need to replace lost wages is to multiply your current annual income by 10. For example, if you make $60,000 a year, then you may want $600,000 in life insurance coverage. However, an age-based calculation method may be preferable to account for additional years of lost income.

CCN Underscored Money suggests possibly estimating your coverage amount as follows:

Under 40 30 30 x $60,000 =  $1,800,000
In Your 40s 20  20 x $60,000 =  $1,200,000
In Your 50s 15 15 x $60,000 =  $900,000
In Your 60s 10 10 x $60,000 =  $600,000


Requesting & Comparing Life Insurance Quotes

You may want to start getting your life insurance quotes online to get an initial idea of how much your policy will cost. However, keep in mind that your actual cost for life insurance will depend on your insurer’s underwriting process and a variety of different factors:

  • Term Length of Policy - Because it lasts your entire lifetime, whole life insurance is generally more expensive than term life insurance. The shorter the term length, the cheaper your coverage will be.
  • Coverage Amount - The more coverage you want, the more expensive it will be. A higher death benefit means higher premiums.
  • Gender - Average life expectancy for U.S. women is nearly six years longer than for U.S. men.3 Because of their longer life expectancy, women generally pay lower premiums than men for the same type of life insurance policy.
  • Age - The younger and healthier you are, the cheaper your insurance rates will be. Insuring an older, less healthy person means a life insurance carrier is taking on greater risk that such an insured person will die sooner.
  • General Health - As part of the application process, you may be required to undergo a medical exam. People with certain health conditions are riskier to insure, which will increase your coverage.
  • Tobacco Use - Smokers and tobacco users are at greater risk of developing lung disease and other health conditions, which in turn translates into higher premiums.

Here are some practical steps to keep in mind to help you prepare for your comparison of life insurance quotes:

  1. Assess your financial needs and goals. Everyone’s personal life situation is different, so it’s important to consider your short- and long-term financial needs and goals when you are preparing to buy life insurance. Being single or married, having children, paying a mortgage, being a smoker, having a chronic health issue and considering when you want to retire are just some of the considerations that will have an impact on the type of life insurance and coverage amount you choose.
  2. Research insurers and collect several quotes. Once you decide on the type of policy and death benefit amount you want, research a number of insurers who offer what you are looking for — much of which you can do online. However, you may want to consult with an agent or broker if you are having trouble locating certain information about a company, like reviews about their customer service.
  3. Organize your information. You may find it helpful to make a list or spreadsheet that outlines the life insurance carriers, the policies they offer, quotes for different term lengths/coverage amounts, policy benefits and features and any available riders. For example, an accidental death benefit rider provides an additional payment — above the basic death benefit amount — to your beneficiary if you (as the insured) die as a result of an accident. Be aware that adding riders generally increase your policy cost.
  4. Compare quotes and review your options. Now it’s time to review and analyze your findings in a side-by-side comparison. Which company offers you the kind of policy you want at the most affordable price? Remember that the cheapest choice may not always be the best choice for your particular situation. Weigh your options carefully, taking into account the elements that are most important to you. In addition, you should conduct background research on each of the life insurance companies you are considering to make sure you feel confident about their customer service, financial strength and overall reputation in the industry. At this point, you also may want to confer with your children or other family members to get their opinions and feedback.
  5. Seek out professional guidance. Shopping for the right life insurance policy may seem overwhelming, especially if this is your first time. That’s why it can be helpful to consult with an experienced insurance agent or broker who can help explain the life insurance marketplace and offer you guidance in terms of what to expect. Having this kind of professional support may make your decision making easier.

Comparing Life Insurance Companies

Once you have obtained a series of life insurance quotes and narrowed down your selection of insurers, the next step is to compare the life insurance companies not only in terms of their product offerings and affordable rates of coverage but also with regard to their financial strength and industry ratings, claims fulfillment and customer service.

How to choose the best life insurance company for your policy needs depends on your examination of several key areas:

  • Financial Strength Ratings — Insurers need to be able to pay out all of their death benefit obligations to beneficiaries, so insurance carriers are evaluated on their overall financial strength by independent agencies such as AM Best, S&P Global Ratings, Fitch Ratings and Moody’s. These agencies analyze the financial operations and assets of insurance companies and assign grades (financial ratings) according to their findings. Be on the lookout for “excellent,” “superior” or “strong” designations when evaluating the financial strength of the insurers you are considering. Insurance companies usually have these financial strength ratings listed prominently on their websites
  • Quality Customer Service & Claims Fulfillment — When you have a question or need to file a death claim, you want a life insurance company that will be professional, courteous, efficient, accurate and responsive with its customer service. One way to find out about an insurer’s customer service and claims fulfillment is by asking friends, family members and colleagues if they have any direct experience or feedback to share with you. Third-party insurance agents or brokers may be able to help you to access these areas, too.
  • Third-Party Industry Reviews — Relying on third-party professional evaluations and surveys is another way to gather information when you are comparing life insurance companies. For example, DALBAR is a financial services market research firm that annually evaluates and ranks telephone customer service among life insurers. In addition, each year J.D. Power conducts a U.S. Individual Life Insurance Study to measure the experiences of customers in five key areas (communication, interaction, price, product offerings and statements) of the largest individual life insurance companies in the nation.
  • Level of Customer Complaints — The National Association of Insurance Commissioners (NAIC) gathers data about consumer complaints regarding insurers as reported from state insurance departments. The NAIC Consumer Insurance Search allows customers to research and access various reports about life insurance companies, including complaint trend, financial overview and state licensing reports. The Company Complaint Index — which the NAIC calculates for each company by dividing a company’s share of complaints in the U.S. market by the a company’s share of premiums in the U.S. market — is used to compare a company’s performance relative to other companies in the market. Reviewing these reports can provide you with information to help you evaluate potential insurance carriers.

Choosing the Right Life Insurance for You

Selecting the right life insurance policy for your current life situation again depends on a number of different variables. How to choose life insurance that meets your specific needs involves the following:

  • Understanding your life insurance options and the different types of policies that are available
  • Evaluating your coverage needs given your short- and long-term financial obligations and goals
  • Feeling comfortable with your insurer’s financial strength ratings
  • Consulting with an experienced financial representative or licensed insurance agent for additional input and guidance

If your needs are temporary, such as paying off student loans or a home mortgage, you may want to consider a term life insurance policy. However, if you have longer-term needs or goals, like wealth accumulation and leaving an inheritance for your grandchildren or covering your final expenses, a whole life or universal life insurance policy may be more appropriate.

If you have both temporary and permanent needs for life insurance, you could consider buying a term life policy now that has the ability to convert to a permanent life insurance policy after a number of years. On the other hand, you may want to purchase two different policies — one term life policy and one permanent life policy — with different coverage amounts to meet your objectives.

Discussing your specific life situation with a financial advisor or life insurance agent may offer you greater peace of mind in reaching a decision.

What Is the Process for Purchasing Life Insurance?

You have completed your research to determine the kind of life insurance you want, estimated how much coverage you will likely need, created a list of potential life insurance companies to work with and obtained some preliminary life insurance quotes for comparison. Now you’re ready for the next step: knowing how to buy a life insurance policy.

When you are actually ready to purchase a policy, you have a few more options to consider:

  • Online, by phone or in person: Depending on how you want to conduct business, you can begin the purchasing process online, on the phone or in person. The advantage of meeting with someone in person is that it gives you the opportunity to start building a personal relationship with an agent or broker, who can offer you further guidance and answer any questions you may have along the way.
  • Working with an insurance company agent: If you have decided on a specific insurer, you can contact one of their agents online or by phone or visit one of their company branches to speak directly with an agent.
  • Working with a third-party insurance agent or broker: If you are still considering a number of different possible insurers, you may want to consider finding an insurance agent or broker who can provide you with quotes from all of them and then help you evaluate your options to select the best policy for your specific needs. Once again, you can reach these third-party agents/brokers online, via phone or in person.

Depending on your level of knowledge and familiarity with the life insurance industry, you may find it helpful to consult with a knowledgeable financial representative to better understand and review the details of all your life insurance options so you can find the policy that best meets your long- and/or short-term financial needs at an affordable price.

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  1. New Study Shows Interest in Life Insurance at All-Time High in 2023.
  2. How much life insurance do I need? CNN Underscored Money.
  3. Life expectancy for men in U.S. falls to 73 years — six years less than for women, per study.

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