Life insurance is one way to help protect loved ones.
But, with numerous life insurance choices sold in the US market, it can be challenging to pick which policy to go with. There are plenty of details to keep track of—such as, getting insurance quotes, understanding payment options, and figuring out coverage.
From selecting a reputable insurance provider to estimating an adequate amount of coverage, navigating various life insurance options may feel like wandering through a labyrinth.
Below are tips for comparing life insurance policies and understanding the insurance buying process.
Choosing the Right Policy
Before comparing life insurance options, it can be helpful to select the right type of policy. Since choosing the right kind of life insurance policy can be confusing, here are a few guidelines:
Buying Term Life Insurance
Term life insurance is designed to provide protection for a specific amount of time, usually in 5, 10, 15, 20, 25, or 30 years. Term policies can match the length of time coverage is needed.
For example, if the top priority is providing income for dependents to fund their college, a 20-year policy might be applicable. Perhaps the top priority is the ability for beneficiaries to repay existing debts. In this case, maybe a 25-year policy would make more sense.
One reason buying term life insurance may make sense is if the budget is limited. Generally speaking, term life insurance only pays out if the policyholder dies before the end of the policy term.
So, the rate per thousand of death benefit typically costs less than permanent life insurance policies—which, while more expensive, typically covers a policyholder’s whole life.
With term life insurance, the coverage usually expires when the policyholder lives past the length of the policy. Renewal is possible, but terms and rates may vary based on the applicant’s health and age.
Policyholders who wish to extend their policies may want to contact different providers to determine how lengthening their life insurance terms generally works.
If financial needs change during the term of the life insurance policy, some insurers may offer a convertible policy.
With a convertible policy, policyholders can convert the policy to a permanent policy in exchange for higher premiums. And, with some providers, medical exams are not required for conversion to a permanent policy.
Buying Permanent Life Insurance
So, how’s a buyer to recognize the key differences between term vs. whole life insurance?
Permanent life insurance (aka whole life) is designed to provide protection for a policyholder’s entire lifetime.
In other words, the policy will pay a death benefit no matter when the policyholder passes away. For term policies, the benefit is normally paid out only if the death occurs before the end of the covered term.
Permanent life insurance policies may also come with a savings component, which can grow on a tax-deferred basis. Policyholders can use this saving component to borrow funds for a variety of reasons.
The savings component might also be used to pay premiums if making payments on the policy becomes a challenge in the future. Even if a policyholder has less than ideal credit, the funds can still be borrowed against. In that case, the death benefit is considered collateral for the loan.
In practice, this can mean that when a policyholder passes before what’s borrowed against the policy has been repaid, the life insurance company deducts what’s still owed from the beneficiary payout.
There are several other options for permanent life insurance worth, including:
• Whole life insurance. This coverage provides foreseeable lifelong coverage, which includes a fixed premium and death benefit.
• Universal life insurance. This type of coverage provides flexible lifelong protection and several cash accumulation options.
• Variable universal life insurance. This type of coverage offers flexible death benefits and several investment options for the cash accumulation component.
It’s important to note that permanent life insurance is typically more expensive than term life insurance. So, when weighing out the options, the cost might be a crucial factor to calculate.
Calculating the Right Amount of Coverage
There are several different ways to calculate how much coverage is necessary. Some insurers recommend multiplying a policyholder’s salary by 5 to 10 times.
Using a free life insurance calculator can also simplify estimating the cost of different coverages. With online insurance calculators, people shopping for life insurance answer a few questions to estimate the amount of coverage they may need.
Since the 5 to 10 rule of thumb creates results that can vastly vary, it’s essential to account for all the beneficiaries’ anticipated needs. For instance, children may require a higher death benefit than spouse’s because of the anticipated cost of attending college or to cover other educational expenses.
On the other hand, if additional resources or assets are available to the beneficiaries at the time of a policyholder’s passing, a lower coverage amount might make more sense.
When using a life insurance calculator, it’s crucial to include all the debt that beneficiaries or an estate may be responsible for—including shared revolving debt.
It’s important to note that the amount of life insurance coverage that the buyer deems necessary is one major factor that affects how high or low the monthly premiums amounts end up costing.
Comparing Life Insurance Providers
After determining the right type and amount of life insurance coverage needed, it’s time to gather life insurance quotes and decide which insurers to look at.
Searching for insurance companies with established financial histories, strong consumer ratings, and flexibility of product offerings may increase the policy value.
With this in mind, here are a few things to chew on when selecting insurance companies.
Understanding Providers’ Financial Strengths and Ratings
Several credit rating agencies produce analyses on the financial health and the claims-paying ability of insurance providers.
Rating agencies look at insurance providers’ overall financial strength and their ability to meet existing insurance obligations (i.e., paying out the benefits).
While no rating is guaranteed, buyers may want to review various companies’ ratings when researching who to seek a life insurance quote from.
For example, A+ and A++ are A.M. Best’s superior ratings—representing companies that, according to the agency’s analyses, have shown an exceptional ability to meet their insurance obligations and have evidenced financial strength.
Gathering Multiple Life Insurance Quotes
To obtain a life insurance quote, some providers offer simple online applications. The insurance company can provide an accurate quote by asking potential policyholders to share some personal details—with questions typically covering the applicant’s age, location, gender, health, and desired coverage.
Since permanent life insurance policies tend to be more complex, it’s sometimes wise to consult with an agent who can help compare the pros and cons of different life insurance policies.
Comparing Life Insurance Quotes
Life insurance providers’ underwriters generally determine the cost of each policy. The underwriters look at numerous factors, including applicants’ age, health condition, and medical history, to determine the risk for taking on the contract.
While each provider may use similar methodologies, costs can vary depending on the amount of coverage they are willing to give and the price paid by the policyholder.
But, again, the value of the company and the services offered can also play a role in how much a policy may cost.
So, while aiming to get the lowest monthly bill may seem like the right solution, it’s wise to evaluate if that lower-priced option can provide the desired coverage over the life of the policy.
Customization is one additional factor that people shopping for life insurance may want to keep in mind. Since no two policyholders have the same financial goals or coverage expectations, some insurers offer policies designed to match a given applicant’s specific needs.
For example, insurers may offer different riders or payment plan options to make each policy more customizable to the policyholder’s goals. Insurers who offer more flexibility might be a better fit for some buyers.
Buying life insurance from a company that offers a wide range of products is not only a convenient way to shop for insurance, but it may help policyholders to save money. Insurance companies at times offer discounts for bundling multiple insurance policies together.
People shopping for life insurance can review the other products each insurance company offers to determine if buying a specific insurer’s bundled policies can save time, money, and the potential hassle of working with more than one provider. around.
For instance, it may be possible to bundle life insurance alongside automobile or rental insurance.
Long-Term Cash Value Potential
Since permanent life insurance has a cash value component that can grow over time, it’s important to factor this trait when comparing each policy’s potential value. Although low-cost policies may seem like an attractive option, they may not provide as much coverage over the policy’s life.
For buyers who prioritize cash value and dividend distribution, picking a life insurance policy that offers either or both features may be a good choice. But, keep in mind: Policies with higher dividend payouts are, typically, more costly each month.
Using an Agent
While it’s possible to buy life insurance online, sometimes, it’s wiser to contact an insurance agent. Because different life insurance products come with varying fine print details, an insurance agent could help buyers grasp the key differences between policies and products. Buyers can also ask them any lingering questions.
And, an agent who is well versed in the product’s details can explain important distinctions like cost, coverage limits, varying terms, etc. It’s worth recalling that any insurance agents are paid on commission.
Before a buyer consults with an insurance agent or broker, it can be a smart idea to hone in on exactly how much life insurance is needed and what budget exists to pay for it.
Taking the Next Steps
Life insurance can be one part of financial planning for the future. Comparing life insurance policies may help ensure that loved ones are appropriately protected if a policyholder passes away.
With SoFi Protect, you can apply online in minutes and get a life insurance quote or decision quickly.
Ladder policies are issued in New York by Allianz Life Insurance Company of New York, New York, NY (Policy form # MN-26) and in all other states and DC by Allianz Life Insurance Company of North America, Minneapolis, MN (Policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to offer life insurance in the state of New York. Coverage and pricing is subject to eligibility and underwriting criteria. SoFi Agency and its affiliates do not guarantee the services of any insurance company. The California license number for SoFi Agency is 0L13077 and for Ladder is OK22568. Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other. Social Finance, Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderLifeTM policies. SoFi is compensated by Ladder for each issued term life policy. SoFi offers customers the opportunity to reach Ladder Insurance Services, LLC to obtain information about estate planning documents such as wills. Social Finance, Inc. (“SoFi”) will be paid a marketing fee by Ladder when customers make a purchase through this link. All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.