Best Life Insurance

Types of Life Insurance Policies

Individuals looking for a life insurance policy can choose a permanent policy or a temporary policy.

Term life insurance: A term life insurance policy offers life insurance coverage for a specific period of time, typically 10-30 years. People who purchase term policy make monthly premium payments for coverage. The beneficiaries of insured people who die during that time receive the death benefit.  

Term life policies can be renewable or later be converted into permanent life insurance. If the policyholder is still living at the end of the term, some life insurers give its policyholders the cash value of the term life policy when the term is finished. Term life insurance coverage tends to have lower premium rates than permanent policies because it is only temporary.

Whole life insurance: Whole life insurance provides life insurance coverage for an individual’s entire life. The monthly cost is higher and does not change over time. Individuals can opt to invest additional money into the account to increase its value. The value of the policy also grows in a tax-deferred account. Beneficiaries receive at least the current value of the policy.

Universal life insurance: Like whole life insurance, universal life insurance also provides coverage for an individual’s entire life and payments are an investment. Insurance premiums, the monthly payments, go into a tax-deferred account and grow with interest. A universal life insurance policy, however, also offers individuals more flexibility in determining how much coverage they purchase and setting payment schedules.

Variable life insurance: Variable life insurance is similar to universal life insurance because it is permanent life insurance that allows policyholders flexibility with their monthly premiums. Variable universal life insurance differs in that it allows policyholders to invest their life insurance funds in separate accounts with varying stock and bond options.

Final expense insurance: Final expense insurance is also referred to as burial insurance, cremation insurance, and funeral insurance. This kind of life insurance has a lower death benefit because it only covers funeral and other last expenses. Because the benefit amount is smaller, the life insurance rates are more affordable. This is the best life insurance for seniors who do not have a permanent life insurance policy or may not qualify for a term policy. Purchasing a final expense life policy can help protect the financial stability of friends and family taking care of your last affairs.

Life Insurance Policy Riders or Additional Coverage Options

Accelerated death benefit: The policyholder can receive part or all of their policy’s death benefit early if the insured is terminally ill.
Accidental death benefit: If the insured individual dies in an accident, the insurance company will give additional money to the beneficiaries in addition to the death benefit.
Add to cash value: This option allows the policy’s beneficiaries to receive the accumulated cash value of the policy in addition to the death benefit. This option is only available with permanent life insurance policies.
Additional death benefit: Similar to the accidental death rider, if the insured dies under certain circumstances outlined in the policy, the beneficiaries may receive additional money to the death benefit.
Additional purchase option: This option allows the policyholder to purchase more insurance coverage at a later date.
Children’s term: Parents may add their children to their own insurance policies to extend their insurance coverage to their children. It's one way to buy children's life insurance. It doesn’t matter if the children are stepchildren, adopted, or born to you.
Disability income: If the policyholder becomes disabled, the insurance company will give the policyholder a monthly allowance.
Exclusionary rider: This limits fulfillment of the policy under specific circumstances. These are more common in health insurance but can be part of a life insurance policy.
Long-term care insurance: This rider can help defray the high cost of home visits or long-term care in a facility. Long-term care insurance can also be purchased on its own.
Paid-up additions: When a permanent life insurance policy accrues cash value over time, policyholders can choose to use the accrued value to add coverage or cash value to a policy using the dividends. The additional coverages are called paid-up additions.
Renewable term: This clause allows a term life insurance policy to be renewed for a certain amount of time without having to be re-evaluated by the insurance company.
Term conversion: This allows individuals to change their term life insurance into a permanent life insurance policy when the term expires.
Term insurance: This option can be attached to a permanent insurance policy and provides more insurance coverage for a specific period of time.
Waiver of premium: If policyholders become disabled, they are no longer required to make monthly payments to maintain their life insurance policy.

Other Helpful Life Insurance Terms

Beneficiary: A beneficiary is the person who receives the death benefit when the insured person passes away. Policyholders should name at least two beneficiaries just in case they outlive one of them.
Death benefit: The sum of money the insurance company pays to the beneficiaries when the insured person passes away. Death benefits are not taxed via the income tax.
Paid-up status: This is when a permanent life insurance policy has accrued enough cash value to allow the policyholder to stop making payments for a while or to add paid-up additions.
Policy rider: Additional coverage that becomes part of a life insurance policy.
Premium: The monthly payment for a life insurance policy.
Underwriter: Underwriters evaluate applications for insurance. They assess the risk and cost at which the company is willing to assume the risk.

Choosing a Life Insurance Policy

When thinking about life insurance, you need to consider your financial obligations.

• How much debt are you in?
• Are you married or in a committed relationship?
• Do you have dependents?
• Could your savings pay for funeral expenses?
• How would the loss of your income affect your family? 

Life insurance is especially important for young and middle-aged people because they generally have more financial obligations that may not be met in the event of their death. It is also less expensive to purchase life insurance at a younger age than at an older age. When choosing a life insurance policy, think about what you need and may want in the future. 

For example, if you’re single, you may just need an insurance policy that will help cover debt and funeral expenses. Depending on how you think you may age or how you want to spend retirement, you may also want a plan that offers flexibility by adding disability and long-term care coverage.  

If you’re married and want to have children, you may want a policy that offers the option to add your children to your life insurance plan just in case. Coverage is generally offered for children ages 15 days to 18 years old. Even with health insurance, medical bills can be a sudden, crippling expense. 

Life insurance providers allow people to buy life insurance policies for others. Parents can buy life insurance for their children. If you are a dependent on someone, you can insure their life and name yourself the beneficiary of that policy. It can help secure your finances.

Need more help? Learn more about the best life insurance advice and the worst life insurance advice.

Choosing a Life Insurance Company

When choosing a life insurance company, there are several things to consider. Life insurance carriers have different policy packages and rates. Make sure the company you choose has the combination of life insurance and riders that meet your coverage needs. 

Before an application is approved for insurance, the life insurer will underwrite the policy. The underwriting process takes into account the age, gender, work, health, and more in determining the insurability of the applicant and what life insurance rates they qualify for.  For example, tobacco users usually pay a higher premium than people who don't use tobacco or who have quit.

The application process may vary slightly life insurance carrier to life insurance carrier. Many life insurance companies require applicants to undergo a medical exam as part of the underwriting process. The medical exam is used to help determine the risk of insuring an applicant. Some health issues can affect the cost of premium payments. In some cases, completing a medical questionnaire is sufficient for underwriting. 

For more information on premium costs and underwriting, read "Why is my premium so high?: What you need to know about life insurance underwriting."

Some insurance policies do not require a medical exam. These policies are sometimes referred to as no-exam or guaranteed-issue life insurance policies. They tend to have higher life insurance premiums but may save certain individuals money.  

Call a few life insurance agents to get life insurance quotes or work with an independent insurance agent. Independent agents can do the quote fetching for you and help you evaluate your options. Their industry knowledge and experience are especially beneficial for clients with certain medical conditions. 

Compare the life insurance products, rates, and packages to make sure that you are using your money in the best way. Some companies may reject your application, so keep your options open. 

You’ll also want great customer service and knowledgeable agents to help you understand your policy and options before you purchase a policy. Some people use independent insurance agents or advisers to help them find the best company and policy for themselves. Independent insurance advisers are especially helpful for individuals who may be difficult to insure because of age or health concerns. 

Before purchasing a life policy, you’ll also want to take a look at the insurance company’s history of fulfilling claims, their ethical standards, and customer service. These are good indicators of the likelihood that they will meet their claims obligations. If a company has lawsuits against it, either for failure to fulfill claims or for ethical issues, you probably want to avoid that insurer because it may not be trustworthy. 

You’ll want to look at the financial strength rating and health of the company. Companies that have high financial strength ratings publish them on the company's website. Choose life insurance company that has a high financial rating from A.M. Best, Standard and Poor's (S&P), Moody's, or A.M. Fitch. These are the main financial rating agencies. 

You don’t want your family to be in a situation where they make a claim and the company doesn’t pay because it cannot. You can find this information by looking at life insurance reviews by consumers, filed complaints, and third-party ratings.

Learn more about how BestCompany.com rates life insurance companies.

Deciding the kind of policy to buy, comparing quotes, working with an independent life insurance agent, and researching companies will help you find the best life insurance company for you.

For more helpful information on choosing a company and buying life insurance, read: "What's the Best Way to Buy Life Insurance?: What You Need to Know About Buying from an Insurer, Agency, and Online Retailer."

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