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The Best Life Insurance Companies of 2021
We analyzed over a dozen life insurance companies to rate the best life insurance providers by SimpleScore. By examining customer ratings, products offered and the number of riders available, you can feel confident of choosing the life insurance best product.
The 6 best life insurance companies of 2021
- Best for Customized Plans: New York Life
- Best Employer-Sponsored Policies: MetLife
- Best for High-Value Coverage: Transamerica
- Best for Married Couples: Guardian
- Best for Customer Service: State Farm
- Best for Military Members: USAA
The best life insurance companies at a glance
|New York Life||Accidental death and dismemberment|
Automatic benefit increase
Waiver of premium
|MetLife||Acceleration of death benefit|
Disability waiver of premium
Waiver of premium
Return of premium
|Guardian||Acceleration of death benefit [editor – called for most not listed online]|
Child or spouse
Waiver of premium
|State Farm||Acceleration of death benefit|
Payor insurance benefit
Waiver of monthly deduction
Waiver of premium
|USAA||Increase coverage with no medical exam|
Military future insurability
Military severe injury benefit
Term life event option
Term life for children
What is a life insurance policy?
A life insurance policy provides you with coverage for a certain amount and a set period of time known as a term as long as you continue to pay the monthly or quarterly premium. Term lengths are as long as 30 years. If you die during your term, the person or persons you named as the beneficiary of your life insurance policy will receive a preset amount, known as a death benefit.
[Read more: Best Life Insurance for Veterans]
What does life insurance cover?
Leaving money to your loved ones if you die helps them make a smoother financial transition after your loss. Life insurance may cover:
- Your funeral costs
- Any outstanding medical expenses you left
- Living expenses
- College tuition or debt
What is the average cost of life insurance?
Life insurance can vary in cost depending on your age, health, coverage amount and type of policy. A term life insurance policy is cheaper than a whole life insurance policiy. CNN ballparks a 20-year level term policy with a $500,000 death benefit purchased by a 35-year-old man at $430 per year. The same policy for a healthy 50-year-old man would cost $1,300 a year. The same man would pay $7,300 per year if he purchased the policy at 65.
Health and age
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.
At the onset of most life insurance policies, the company has you take a brief medical exam to see what kind of shape you’re in. 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.
Driving record and occupation
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.
How life insurance works
Term life insurance vs. whole life insurance
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 life insurance, 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 loan against the cash value of your policy, although any that is not paid back at your death will reduce the death benefit to your heirs.
Why should I choose term life insurance over whole?
Term life insurance is way more simple than whole life insurance. 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.
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.
Why choose whole life insurance over term?
Life insurance is all about covering needs, 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 whole life insurance policy may make sense.
Whole 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 as an investment
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, 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
Coverage through work
You may have life insurance through your job, but take a close look at the fine print on the policy. Most employer plans carry a death benefit of far less than you would want your dependents to have, and they’re also not portable if you switch jobs. It’s great if you have employer-sponsored life insurance, but you should probably supplement it with a policy of your own.
Working with a life insurance broker
Insurance brokers (people who sell insurance for multiple carriers) sometimes get a bad rap because they work on commission, and they could push an expensive policy that you don’t need just to get a heftier cut of the action. But most brokers are well-trained and operate under a code of ethics, and they can be a huge help.
Brokers can quickly sift through hundreds of options to find the policies that best fit your needs. They also know which companies are likely to offer you the lowest premium. How? They review insurance policies every day, so they’re familiar with the specific underwriting criteria of various companies — which ones are more generous on height and weight tables, or which ones are particularly strict about driving records.
And you may save money by working with a broker. Insurance companies assume a broker fee when they set their premiums, so even if you buy your policy through a website like PolicyGenius, your premiums will be the same as if you worked with a broker. The only difference is where that commission money goes.
Maybe you’ve heard that you should talk to a fee-only financial planner instead of a broker. While it’s true that fee-only advisors don’t receive commissions from insurance companies or other financial products, that doesn’t mean they don’t have some other arrangement that encourages them to suggest certain policies. Plus, a fee-only adviser only makes recommendations, leaving you to purchase the policy yourself (and pay the built-in commission).
Even though brokers are paid on commission, that doesn’t mean they won’t give you good advice. Just make sure they’re licensed to sell life insurance in your state, and they don’t have a disciplinary record. Both of these pieces of info are publicly available from your state’s department of insurance.
Insurers are constantly adjusting their underwriting criteria to take advantage of trends or make themselves more competitive in a particular demographic. A good broker will be aware of recent changes that could save you money on your policy.Shannah Compton Game, CFP, MBA
Chief Millennial Money Strategist at Your Millennial Money
How much life insurance do I 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% annual rate of return, would earn $100,000 a 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.
We welcome your feedback on this article and would love to hear about your experience with the life insurance companies we recommend. Contact us at email@example.com with comments or questions.