The best life insurance companies offer unparalleled financial strength and a few key policy provisions, including disability protection and end-of-life care. To make sure you’re getting the best life insurance policy, you’ll need to shop around and compare rates. The good news is, we’ve put together a handy quote tool to help take some of the heavy lifting out of the shopping process
Something that’s important to grasp right from the beginning: You should only buy life insurance if you actually need it.
While it may be a little depressing to ponder this, if your death wouldn’t cause a financial hardship for someone else (your spouse, kids, business partner, special-needs sibling, etc.), then you’re better off saving your money in a 401(k), an IRA, or an index fund where it can grow faster and eventually exceed the value of a life insurance policy.
But the equation changes when you have children and/or a partner, or are supporting someone else. If you do have someone depending on you — you need life insurance. It’s one solid way to make sure there’s money available for them if you’re not around to help.
There are two basic types of life insurance: term and permanent. We’ll discuss the differences between them later, but for now just know that term life insurance offers better value for most people.
How the Best Life Insurance Companies Stack Up
TIAA Life: Best Overall
Rating agencies give TIAA Life high scores for financial strength and stability: They’ve been awarded A++ and AAA status from A.M. Best and Standard & Poors, respectively—their highest ranking levels. The company celebrated their 100th anniversary in 2018, so you know they are going to be there for you when you need them.
The TIAA Life website features a handy online estimating tool that helps you determine if you need life insurance, and, if so, how much you should get. Standard riders include terminal illness benefits and the ability to convert from a term to a permanent policy without taking a medical exam, as long as you’re under 80. An added bonus? TIAA was named to the Ethisphere Institute’s list of most ethical companies in 2017, and they offer the option to give 1% of the value of your policy to a charity of your choice—but at no cost to you.
New York Life: Best for Customized Plans
New York Life’s robust website features tons of information on the challenges and opportunities that you might face, whether you’re having a baby, moving to a new job, or thinking about retirement.
We particularly like their custom whole life policy, which allows you to pay down your policy at your own speed, and features a variety of riders such as a disability waiver or the ability for your spouse to purchase a new paid-up policy on his or her life without providing evidence of insurability.
Unfortunately, they don’t offer online quote estimates, but they do make it easy to connect with one of their trained customer service agents, who can answer your questions and help you find the right policy for you in a jiffy.
State Farm: Best for Customer Satisfaction
In 2018, State Farm earned the number one spot in J.D. Power & Associates’ annual customer satisfaction survey of more than 5,000 U.S. life insurance policyholders. More impressive? It was the fifth straight year State Farm came out on top.
Favorable pricing and excellent support are leading reasons why policy owners trust State Farm for all their insurance needs. One caveat: the company is not currently doing life insurance business in Massachusetts or Rhode Island, so you’ll want to look at one of our other picks if you live in one of those states.
Honorable Mentions: Amica Life and Lincoln Financial
Like TIAA Life, Amica has been around for more than 100 years, and they’ve earned their good reputation with reasonable prices, excellent customer service, and financial stability. They offer some nice customizable add-ons, including a conversion option to switch from a term to a permanent policy, and a terminal illness rider, which allows you to receive a portion of the death benefits if you’re seriously ill to help you pay for medical or other expenses.
Another company that scores well with rating agencies (placing no lower than fifth place with all four: A.M. Best, Standard & Poor’s, Moody’s, and Fitch Ratings), Lincoln Financial has a broad range of policies. Some, like their index universal life insurance options, are linked to major financial indices like the Dow Jones Industrial Average and S&P 500, making them slightly better options if you’re looking for cash growth—but read on for more about whether it’s wise to use your life insurance policy as an investment vehicle.
How We Chose the Best Life Insurance Companies
We assembled a list of 67 nationwide life insurance companies using the Insurance Information Institute’s “Find an Insurance Company” tool and A.M. Best’s Consumer Insurance Center.
Then we got busy. We talked to experts about what to look for in in the top life insurance companies. We read up on the industry in professional and consumer journals. We scrutinized individual policy details like term life insurance rates.
Finally, we came up with a list of traits that the best life insurance companies share, and we compared those elements among all 67 of our companies, eliminating any that didn’t make the grade.
Five Things the Best Life Insurance Companies Have in Common
- They’re widely available: First, we set aside companies that have special membership requirements, like USAA, which is limited to active and retired military personnel and their families, and regional insurers, which only operate within a limited area. If you qualify for one of these, by all means get a quote from them, but we only considered those that would be applicable to the widest cross-section of the population. USAA, in particular, is well-known for the quality of their products and their excellent customer service. If you’re a military family, they offer options that are tailored for those in active service, designed specifically to protect your family if you are deployed.
- They underwrite their own policies: We cut those who don’t underwrite their own policies. Some, like GEICO, merely service others’ policies, making them unnecessary middlemen. We didn’t like the idea of an extra layer of separation if you went to change or cancel a policy. The last thing you want is for your loved ones to have to jump through extra hoops to collect your death benefit. Direct contact with the company underwriting your policy eliminates those concerns.
- They’re rock-solid financially: We took out those with less-than-excellent Financial Strength Ratings (FSRs). These the best indicators of which companies will still be around decades from now. We eliminated any that didn’t have at least a “Superior” (A+) rating from A.M. Best (the insurance industry’s number one rating agency), as well as a “Very Strong” (AA-) from Standard & Poor’s, or an “Excellent” (Aa1) from Moody’s. Our two top picks have even higher ratings: TIAA and New York Life have an A++ from A.M. Best and an AA+ from S&P.
- They allow policy renewals without another medical exam: We eliminated any life insurance companies that don’t let you renew your policy past its original term without another medical exam. This becomes crucial if you develop a serious illness near the end of your policy’s term, since it guarantees you can maintain coverage even if no one else will insure you. If you do choose to renew your term policy, it operates on a year-to-year basis, and your premium can, unfortunately, jump with each successive renewal. Still, for the folks who need it, guaranteed renewability is a godsend.
- They offer convertible policies: We tossed life insurance companies that don’t let you convert a term policy to a permanent one. Term life insurance is the only type most of us need (we’ll talk about this more later), but there are some cases where permanent can make sense. If you start out with a term policy, but end up needing permanent coverage — to secure care for a disabled family member, say, or to offset estate tax for your heirs — convertibility can be valuable. The important thing is that you can extend coverage without having to take a new medical exam. If you’re sick, converting your existing policy could be the only way to keep your coverage in force for as long as you need it. Among our top picks, only TIAA and New York Life allow conversion at any time during the term, another reason they lead the pack.
Lastly, we assessed how easy it is to customize your coverage.
Since everyone’s life insurance needs are different (and can change over time), the best life insurance policies allow a high degree of flexibility in your coverage, whether standard or as a rider. New York Life was our winner in this category. What sort of factors can be customized? Here are some of the more common:
- Cost certainty: The option for a Guaranteed Level Premium is nearly standard for term policies. The option ensures that your premium won’t rise over the period of your term. Level premiums make it easy to budget. That said, you do pay more in the early years compared to a life insurance policy without level premiums, to offset the increasing costs of insuring you as you age.
- Lots of options for term lengths: Most top life insurance companies offer multiple term options: 10-, 15-, 20-, 25-, and 30-year terms are common. But it’s rare to find a policy as flexible as New York Life’s; it lets you select a term that’s any number of years long from 10 to 20 years. And even though New York Life doesn’t technically offer terms longer than 20 years, the “Policy Purchase Option” allows you to start a new replacement term at specific dates without another medical exam. So, you can buy an initial term of 20 years, have a surprise baby in year 12, and replace the existing policy with a new 18-year term policy. That’s like buying a 30-year policy, except for the fact that you’ll be older when you buy the second term, so your premiums might be higher. However, those same premiums would be based on the medical data from your first policy, which could save you significant money.
- Few, if any, conversion restrictions: Some companies only allow conversion during the first part of the term, so if you wind up wanting to convert in the latter half of your policy, you could be out of luck. A big reason why we liked TIAA is that in addition to allowing you to convert at any time, it also lets you convert a term policy to any of its permanent products, not just the one or two it likes best.
- Disability protection: If you become disabled during your term, a Waiver of Premium Rider will forgive your premiums and keep your policy in force. While it won’t replace lost income (as disability insurance does), it will keep your life insurance policy from lapsing if you can’t pay for it.
- End-of-life care: An Accelerated Death Benefit Rider lets you draw on your policy’s death benefit to help cover end-of-life costs. It can help pay for a potentially lifesaving treatment, or ease the financial burden of hospice care, making an extremely difficult situation a little bit more manageable. Keep in mind, though, if you elect to use this option, it’ll be deducted from your death benefit.
In the end, only a handful of the 67 companies we compared offered all the features we were looking for in the best life insurance companies.
One caveat: We didn’t factor in premium amounts. Of course, cheap life insurance seems better, but it’s only actually better if you have the coverage you need. Also, even if two similar individuals purchased the exact same policy from the same insurer, it’s unlikely they’d pay the same premiums, since there’s so much person-specific data that goes into determining those amounts. It’s impossible to evaluate a life insurance provider on their premiums alone — you’ve got to obtain customized quotes to compare your contenders properly.
What You Need to Know When Buying Life Insurance
There are two basic types of life insurance: term and permanent.
The fundamental difference is right there in the name: Term life insurance is only in force during a set period or “term,” while permanent life insurance (also called whole life or ordinary life insurance) is yours for your entire life.
So why doesn’t everyone just get permanent? Because it’s much more expensive — 10 times more than term, on average. The higher cost makes sense, since the insurance company knows it will be paying out eventually, whereas with term, there’s a good chance you’ll outlive the policy and cost the company next to nothing.
Another difference between term and permanent is that with the latter, the considerably higher premiums build up a cash reserve which helps pay for the policy in later years and may grant you a rebate if you surrender the policy. You may also be able to take out a loanagainst the cash value of your policy, although any that is not paid back at your death will reduce the death benefit to your heirs.
For most people, term life insurance is the way to go.
Term life insurance is way simpler than permanent. You pay a much lower premium for a set period of protection, which typically coincides with your prime working years, when you are more likely to have children or other dependents. You can think of it as insurance on the income you haven’t yet earned.
The advantage is obvious: You can guard against uncertainty by securing a large death benefit for relatively little money. And if you invest the money you save by not going with the higher premiums charged for a permanent insurance policy, you wind up with more cash at the end of your life than a permanent policy would’ve paid (of course, the tricky thing is actually putting aside that difference rather than spending it).
But even if you don’t invest the balance of what you’d pay for a permanent policy, term life insurance still offers lots of value by safeguarding your dependents when they’re most vulnerable. You can buy a 20- or 30-year term policy with the expectation that your kids will be able to provide for themselves by its end, and when you and your partner will also hopefully be reaping the rewards of prudent investing, not to mention Social Security or pensions. Sure, your term policy has no value once it expires, but that’s OK — you were only paying for the protection for a set period of time.
But there are some cases when permanent makes sense.
Life insurance is all about covering need, and in some cases the need for it lasts your entire life. One example is for those with special needs children who will always require care. To ensure their care continues after your death, a permanent policy may make sense.
Permanent life insurance is also worth considering if you’ve built up enough wealth that your heirs will need to pay an estate tax — in 2016, the lifetime exemption amount was set at $5.45 million. Life insurance death benefits are not subject to income tax, so if you get a permanent policy, you’ll know that your heirs will have cash-on-hand to pay the estate tax if your total assets exceed $5.45 million.
This makes even more sense if the majority of your wealth is in property or other non-liquid assets that won’t be quickly and readily accessible to your heirs, unlike your life insurance death benefit.
Permanent life insurance should rarely be purchased as an investment for the policyholder.
As we mentioned above, permanent life policies come with a cash-savings feature that you can access during your lifetime. A portion of each premium you pay goes into the cash value, which earns interest over time based on how the company invests it.
Although the value of life insurance is in the death benefit, life insurance companies realized they could sell more of it (and justify higher prices) if people believed it was a sound investment not only for their dependents, but for themselves as well. However, there’s a big “but” here: The investment returns on a whole-life policy are generally low because insurance companies are obligated to invest mostly in safe, low-yield securities like bonds.
There are also limits on how you can use the cash value in your policy. You can apply it to future premiums or use it to purchase more death benefits, but you can never allow it to run out completely — that will cancel your policy. And while you can take out a loan against your policy’s cash value, it’s hardly ever a good idea, and you’ll need to repay it with interest.
As a rough example, imagine you buy a permanent life insurance policy at age 55 with a $500,000 death benefit. If you leave the cash value untouched, after 30 years it might be worth in the neighborhood of $250,000. You could cash that out (and cancel the policy), but your investment wouldn’t have generated as much return as it would have in, say, an index fund. However, if you keep the policy active, the death benefit for your heirs might be double what you put in.
“Permanent life insurance is rarely a good investment for the policyholder. However, it can be a very good investment for their heirs.”
—Paul Puckett
Independent Life Insurance Agent & Investment Advisor Representative
Independent Life Insurance Agent & Investment Advisor Representative
Two main factors influence a company’s life insurance rates.
Mortality and interest are the two primary factors that are taken into consideration when determining your premium rates for life insurance. There’s also a third, less influential variable: the expense factor.
Mortality has to do with the fact that at its most basic, life insurance is based on a large group of people sharing the risk of death. How big a risk that entails is what determines the cost to each member of the group. Using something called a mortality table, a life insurance company determines the average life expectancy for each age group, and thus can estimate its expenses each year—and your premium.
Once you’ve paid that premium, the insurance company invests it in real estate, stocks, or other money-making vehicles. They earn a certain amount of interest, and that gets factored into the determination of premiums also.
Each company also has to consider the costs of doing business: salaries, rent, advertising, and the like. Expense loading is the phrase used to describe the amount of each premium that goes to those costs. These costs vary from business to business, and a company that is well-run and efficient will feature lower expense loading.
Using these factors, insurers are able to put together a basic estimate of how much money they will need to pay out for death claims each year. From that estimate, they determine how much they will charge each policyholder that year in order to make ends meet and ensure a profit for the company.
Your health and age at the start of the policy are the biggest factors in determining your individual premiums.
The formulas the best life insurance companies use to set premiums are incredibly sophisticated, but they’re designed to gauge life expectancy, and your age and physical health are the primary factors. But your physical health is only measured once, via the medical exam when you first apply for coverage. The insurance company then uses population data to project your average risk of dying over the course of the policy, and sets your premiums accordingly.
This means that the younger and healthier you are at the start of the policy, the lower your premiums will be. It’s also why guaranteed renewability and a guaranteed conversion option are so important, because they also rely on that initial health picture. Premiums tend to increase as you get older.
Another factor that plays a big role in your premium costs? Smoking. Your premium may be twice as high as it would be otherwise if you’re a smoker. There’s never a better time to quit than before you apply for life insurance.
Premiums tend to increase as you get older and smoking can have a huge impact as well.
Even if you aren’t required to take a medical exam, you should.
At the outset of most life insurance policies, the company has you take a brief medical exam to see what kind of shape you’re in (it’s basically looking for cancer, diabetes, and heart disease). If you’re fairly young, they might give you the option to bypass the pokes and prods and just fill out a medical questionnaire. But what the company probably won’t tell you is that your choice could result in higher premiums. Without hard medical data to prove your health, you could be regarded as a riskier — and therefore more expensive — bet for the company.
“Full underwriting (with the use of a medical exam) takes more time, but it’s likely to result in significantly lower premiums.”
–Tony Steuer, CLU, LA, CPFFE
Founder, The Insurance Literacy Institute
Creator, The Insurance Consumer Bill of Rights
Founder, The Insurance Literacy Institute
Creator, The Insurance Consumer Bill of Rights
Your driving record and credit score matter, too (among other things).
While age and health make up the lion’s share of your premium value, there are other significant risk factors that companies weigh. If you have poor credit or a history of traffic violations, those can drive up your premiums. Likewise, if you’re in a job that consistently takes you to dangerous locales or requires a lot of flying, you might be perceived as a bigger risk and find yourself with higher premiums.
You and your spouse should each buy a term policy.
If you’re the primary breadwinner in your family, with a spouse who takes care of the home, you might not have considered the real cost of replacing the work he or she does. It may be more than you think. For the past few years, Salary.com has surveyed more than 15,000 stay-at-home moms. In 2018, it found that the 10 most frequent responsibilities (things like day care, driving, tutoring, and cooking) totaled up to a market value of $162,581 a year. This could be what you’d have to pay outside help in their absence — reason enough to buy a separate term policy.
When do my beneficiaries receive their payment from my insurance policy?
Life insurance policies take effect when the insured has passed away and the beneficiaries have filed a claim. This involves submitting a certified copy of the death certificate to the life insurance company holding the policy. It’s important to file a death claim as soon as the insured is pronounced dead to avoid complications in the review process.
Take Action
Think carefully about how much life insurance you really need.
Maybe you’ve heard that you should multiply your annual income by 10 to get your life insurance face value, but you might want to take a little more time than that to calculate something so important.
First, consider your long-term debts. Do you have a mortgage that will require payments for the next 25 or 30 years? What about student loans, medical expenses, and credit card balances? If you have children, are you planning to pay their college costs?
Then ask yourself how much it takes to sustain your household at your current spending habits. You may also want to consider a larger death benefit than your beneficiaries will need, if you can afford it, because life insurance benefits are paid out in a tax-free lump sum. If invested, it can reap a significant amount of interest even in the very first year. For example, a $2 million death benefit, if invested at a 5 percent annual rate of return, would earn $100,000/year if left untouched.
Take the cost of inflation into account, too. We appreciated Amica Life’s rider for that; it automatically increases the death benefit to keep its purchasing power consistent with inflation.
