How to Choose the Best Life Insurance Company

Young family figuring out how to choose the best life insurance company

Key Takeaways

  • The choice of insurers should be based on multiple factors, including its financial strength and customer service.
  • Ratings agencies like AM Best, S&P Global Ratings, Fitch Ratings and Moody's grade different insurers for their financial strength.
  • Selecting the carrier with the lowest premiums isn't always a good idea, unless they have a strong track record.

When you buy a life insurance policy, you're relying on the company to help keep your family financially secure if something should happen to you. You're depending on the carrier to be there for your loved ones when they need it most.

That's why learning how to choose the best life insurance company for your needs is essential. Before buying a policy, you'll want to evaluate the company based on multiple factors that will determine your satisfaction over the long term. Here are some of the criteria to consider in making your decision.

1. Financial Strength

Perhaps the most important criterion when choosing a life insurance company is its ability to pay the policy's death benefit at your passing. Because insurers can't perfectly predict every potential outcome — for example, how many claims they'll have to pay out over a certain period of time — they need sufficient reserves in order to reliably meet their financial obligations.

Independent industry analysts, agencies such as AM Best, S&P Global Ratings, Fitch Ratings and Moody's, help measure the financial strength of particular insurers. These agencies analyze the operations, assets and potential payouts of insurance carriers and assign a grade based on their findings. When buying a policy, stick to companies that receive an "excellent, "superior" or "strong" designation from each of the major agencies. Chances are, your insurance company has these ratings posted on their website for easy reference, especially if they receive strong marks.

2. Product Offerings

When helping create a financial safety net for your loved ones or your employees, having the right type of coverage is critical. Most life insurance coverages fall within two major categories: term insurance and permanent insurance. Make sure the insurance provider offers the exact product you require for your financial needs.

Term Life insurance

Term life insurance is the most basic type of protection. These policies provide a cash death benefit to your beneficiaries if you should pass away while the policy is still active. Unlike some other life insurance products, term coverage is in effect only for a specific length of time — generally between 10 and 30 years. Term policies usually appeal to budget-conscious buyers. Expect the premiums to be a fraction of what you would pay for permanent protection with the same death benefit.

Permanent Life insurance

As the name suggests, permanent life insurance has no end date; your coverage lasts for as long as you pay the required premiums. In addition to offering a death benefit, these policies allow you to gradually build cash value that you can access during your own lifetime. While more expensive than term products, they may serve as a source of funds that you can eventually use toward college tuition, a home purchase or any other financial needs you may encounter.

Whole life policies, which provide a guaranteed death benefit and pay a fixed rate of interest on your cash balance, are most common. Some whole life products also pay dividends tied to the financial performance of the company, enabling you to potentially further grow your wealth.

Universal life, another form of permanent coverage, is more tailored to customers who desire financial flexibility. Universal policies allow you to modify your amount of coverage — and in many cases, the premium that you pay — based on your evolving needs. However, as the death benefit isn't guaranteed, your coverage can expire if your policy isn't adequately funded.

3. Cost of Coverage

When you take out a life insurance policy, you could be paying premiums for years or even decades. So when shopping to find a company, price should be one of the factors you'll want to consider.

To obtain a personalized quote, you can contact the local office of the insurance provider directly. Alternatively, you can receive product and pricing information by calling its customer service number or filling out a quote request on its website.

4. Customer Service and Reviews

Over time, there's a good chance you'll need to change your dependents, apply for additional coverage or simply need to ask questions about your policy. Dealing with a competent customer service team can make handling those tasks much easier.

You'll also want to choose a company that is reliable. Word-of-mouth is one way to check how companies are viewed by their policyholders. If you want a more comprehensive evaluation, however, the market research firm DALBAR provides annual awards for the best telephone-based service among life insurers. J.D. Power also conducts an annual customer satisfaction survey where policyholders rate their provider. If there's a drawback to the J.D. Power survey, it's that the list includes only the very largest insurers. Overlooked are companies with less name recognition, ones which are often just as good at serving their customers.

Understand Your Goals and Budget For Life Insurance

There are any number of reasons why you may need to take out a life insurance policy. Having financial protection may make sense, for example, if:

  • You're the primary breadwinner in your household and want to protect your spouse.
  • You have dependent children or you're expecting a baby or in the process of adopting a child.
  • You're an owner or key executive at a small business that may have trouble replacing you.

Having a life insurance policy in place can help ensure your dependents are able to manage their recurring expenses, and prepare for large future costs, even after you're gone. A financial professional can help you determine the amount of coverage you need, based on your unique financial situation.

Frequently Asked Questions

How are life insurance companies rated?

Five ratings agencies analyze the financial strength of insurance companies and assign them a grade: AM Best, S&P Global Ratings, Fitch Ratings and Moody's. Based on the insurer's financial data, the agencies assess its ability to meet ongoing policyholder claims and other obligations.

Because each ratings agency uses a slightly different system to grade insurance companies, comparing them requires understanding each agency's rating scale. The Comdex ranking tries to make the research process easier for consumers by providing a composite score — ranging from 1 to 100 — using the all the primary rating agencies. An insurance carrier would receive a Comdex ranking of 100 if it received the highest marks from every agency.

How can I compare different life insurance companies?

Choosing the best life insurance company is a major decision that should involve several factors, including financial strength, product offerings, customer service and, of course, cost. While it may be tempting to choose an insurer that offers the lowest premium, you should only do so if the company receives good marks from the major credit rating agencies and has a strong track record. Otherwise, you can't be as sure that you'll have a positive experience, or that your loved ones will receive the policy's death benefit when they expect it.

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