Life Insurance Finder

This article was fact-checked and reviewed by Andrew Flueckiger, a licensed insurance agent and Certified Insurance Counselor. Content has been updated for 2020.

How does life insurance work?

Life insurance is a financial safety net for your loved ones in the event of your passing. Think of life insurance as a contract between you and your insurance company. You pay a premium to maintain your coverage, and when you die, your insurer pays out your policy to your beneficiaries. This payment is known as a death benefit, and it can help your friends and family focus on healing and celebrating your life, rather than grieving while trying to figure out how to pay all the bills.

The basics of life insurance

Watch our short video to understand the basic concepts of life insurance and how they apply to you.

How much does life insurance cost?

While rates can vary wildly, the average cost for life insurance is less than $50 a month. For example, a 20-year term life insurance policy worth $500,000 for someone between the ages of 25 and 40, and in good health, would average around $28 a month.

Your rate depends on a range of factors, like your age, gender, health, weight, occupation, lifestyle and whether you’re a smoker. The coverage amount, term length and type of policy you’re applying for come into play, too. Insurers weigh these factors differently, which is why it’s important to compare quotes from multiple companies.

How much coverage should I buy?

It really comes down to how much coverage you can afford. When you’re doing the math, factor in these three things:

• Income. The golden rule is to buy a policy that would replace your income and cover your family’s cost of living for five to 10 years. To do this, multiply your salary by five or 10.
• Assets. As you move through life, you’ll most likely acquire assets such as a house, car, savings account or 401(k). Your life insurance policy should protect these assets. Figure out their value and add that dollar figure to your coverage.
• Financial obligations. Total all of your expenses now and those you can expect in the future — like childcare or college tuition.

How to compare life insurance policies

To find a comprehensive life insurance policy at the best rates, look into how coverage amounts affect your premiums, the flexibility of your policy options and additional riders or features specific to the providers you’re interested in.

To simplify the process of comparing different policies, ask yourself:

• What is the minimum and maximum coverage I can buy? Learn the limits of the provider’s insurance policies and what your loved ones will receive in the event of a claim. Some insurers allow you to buy life insurance at any amount, while others cap coverage for specific occupations and age groups.
• Do the policy’s terms come with age restrictions? Research whether age affects your ability to apply for a specific policy, and learn about any ages at which your policy stops covering you. Seniors looking for life insurance, for example, may find limited options among insurers.
• Can I purchase additional insurance without a medical exam? Some insurers offer no medical exam insurance, which allows you to purchase coverage without a lot of medical underwriting. Many online insurers allow a short questionnaire to stand in for a medical exam, though this option often comes with higher rates.
• Which features are included in my policy — and does it offer riders? Look at the range of features automatically included in your policy. If your policy isn’t as flexible as you’d like, ask about riders that can help you customize your policy to fit your life’s circumstances.
• Can I combine the policy with other types of insurance? It’s often cheaper to buy insurance through one provider instead of buying policies from different companies. Depending on the insurer, you might be able to combine standalone disability income insurance and critical illness insurance policies with your overall policy.
• Does the policy exclude specific occupations? If you work in high-risk industries or situations, make sure you’re not excluded from the provider’s coverage. Conditions on coverage can vary among insurers based on your occupation or lifestyle. You might even find a provider that specializes in your field, potentially offering more affordable rates.

Key terms

• When you're shopping around for a policy, you might come across these terms:

  • Beneficiary. The person, organization or entity you nominate to receive the proceeds of your life insurance policy when you die.
  • Cash value. The cash that accumulates over time in permanent life insurance policies, like whole life.
  • Claim. After a policyholder dies, it’s the beneficiary’s responsibility to let the insurer know that the payout is due. This is the process of “filing a claim.”
  • Coverage amount. Also known as “face value,” this is how much your policy is worth — such as $250,000, $500,000 or $1 million. In most cases, your beneficiaries will receive a death benefit equal to the coverage amount when you pass away.
  • Death benefit. The amount of money that is paid out to your beneficiary or beneficiaries when you die.
  • Quote. The estimated amount of money you’ll pay for coverage, as calculated by an insurance company.
  • Rating class. The risk category you qualify for according to your insurer’s underwriting standards. Common rating classes are Preferred Plus, Preferred and Standard.
  • Rider. An optional add-on that can bridge any gaps in your coverage. The options vary between insurers, but you’ll typically pay a fee to add riders to your policy.
  • Policyholder. The person who owns the policy.
  • Premium. The fee you pay to keep your policy in force.
  • Term. The length of time your term life policy is in force — for example, 10, 15 or 20 years.
  • Underwriting. The process by which an insurer determines how risky you are to insure. Underwriters assess your age, gender, job and lifestyle, as well as your health history and medical exam. They then use this data to assign you a rating class and set your premium.

Who needs life insurance?

Here’s the golden rule: if you have loved ones who depend on you financially, you most likely need life insurance. Your policy can help to provide for them when you’re gone. These people have the greatest need for life insurance:

Take our quiz: Do you need life insurance?

How do I get a life insurance policy?

When is life insurance paid out?

The death benefit is paid out when you die. It’s typically paid out in a lump sum — but you can instruct your insurer to pay the death benefit in installments or annuities.

Your beneficiaries can then use the money however they wish. The most common ways people spend the cash include:

• Mortgage payments
• Living expenses — like utility bills, groceries, rent, health and car insurance
• Cosigned debts that don’t disappear when you die — such as student loans or credit cards
• End-of-life expenses — including funeral costs and unpaid medical bills
• Child care
• Long-term care — like a nursing home or medical expenses for ailing parents
• College tuition

Is the death benefit taxed?

No, the death benefit isn’t considered taxable income, with one exception: If your estate is worth higher than the IRS threshold, it will be subject to federal estate taxes. The life insurance payout will be counted as part of your estate and taxed accordingly.

What are the types of life insurance?

Life insurance plans are lumped into four main types of life insurance: term, permanent, no-medical exam and group life policies.

Permanent life insurance

A life insurance policy and investment product rolled into one, these policies offer lifelong coverage and accumulate cash value over time. When you pay your premium, a portion will go towards the cash value of your policy, which earns interest as it grows.

No-medical exam policies

If you don’t want to take a medical exam for whatever reason, these are your policy options.

Compare the types of life insurance

Feature	Term life	Whole life	Universal life	Variable life	Simplified life	Guaranteed issue	Final expense	Group life
Coverage for a set period
Lifelong coverage
Guaranteed death benefit
Requires health questionnaire
Requires medical exam
Fixed premiums
Flexible premiums
Builds cash value
Offers tax free loans

What life insurance riders can I get?

Most insurers allow you to dress up your policy with riders. Besides the living benefits riders we talked about above, these are some of the most popular ones:

• Conversion rider. Gives you the option to convert your term life insurance policy to a permanent policy within a certain time frame.
• Waiver-of-premium rider. Waives your premiums if you become unemployed or fully disabled and can’t work.
• Child rider. Pays out a death benefit if your child dies, and typically expires when your child gets married or turns 25.
• Return-of-premium rider. Reimburses you for any premium paid if you outlive your term life policy.
• Guaranteed insurability rider. Lets you boost your coverage without completing another health questionnaire or medical exam.
• Cost-of-living rider. Increases your policy’s death benefit to keep up with inflation.

Frequently asked questions about life insurance

• Who do insurers classify as a smoker?

  If you’ve smoked tobacco in the last 12 months, most insurers will classify you as a smoker. Some insurers are more lenient, and will allow a celebratory cigar once a month without assigning you a smoking status.

• What happens if I can't make a premium payment?

  Your insurer is legally required to give you a grace period to make up the payment. It typically lasts 28 to 31 days, and your policy stays in force. If you fail to make a payment during the grace period, your insurer will cancel your coverage.

• Should I buy directly or through a broker?

  You have options when shopping for a life insurance policy. You’ll find brokers that work with a range of companies to help you find the best prices in their network on the coverage you need, but they may not offer the personalized service you’ll find with a direct agent.

  Both broker and agents work on behalf of providers to sell you a life insurance policy. It all comes down weighing each against what you’re looking for.

  Buying life insurance from a broker

  • Not limited to one provider, offering access to a wide range of products for potentially greater choice.
  • Can flex their knowledge of the market to help you find coverage to suit your circumstances.
  • Can help you assess your situation to determine the type and amount of coverage you need.
  • Can offer overall advice regarding life insurance and annuities.
  • Depending on their expertise, may offer higher coverage levels and stronger features outside of your typical policy.

  Guide to life insurance brokers

  Buying direct from an insurance provider

  • Limited to one provider’s products, though with expertise to talk about them in detail.
  • May allow you to fully sign up online or by phone, with immediate conditional approval.
  • Online providers may offer faster underwriting and turnaround.
  • Direct products might have higher coverage available — with some offering coverage amounts of up to $15 million.

  Guide to life insurance agents

• What if I already have life insurance through work?

  While group life insurance is a solid employee benefit, it’s often capped at small amounts, like $100,000 — and this may leave you underinsured. Group policies aren’t portable either, which means you’ll lose your coverage if you change jobs.

• Can I change my beneficiary?

  You may name multiple beneficiaries, and indicate which percentage of the death benefit should go to each when you apply for a policy. You can update the list at any time. Most people name their spouse or children as their beneficiaries, but you don’t have to. You can choose another family member, friend, business partner, charitable organization or a legal entity — like an estate or trust.

• Can I adjust my coverage level?

  Foresee needing more or less coverage in the future? Some policies allow you to increase or decrease your coverage:

  • Variable life, universal life and variable universal life. These permanent policies give you the freedom to change your coverage amount — just keep in mind that this will also affect the death benefit.
  • Decreasing term life insurance. With this type of term life insurance, the death benefit gradually decreases as you age. It’s ideal for those who know they’ll have less debt as time goes by.

• Can I cancel my policy?

  You can cancel your life insurance whenever you want. But you’ll only receive a refund of any premiums you paid in these situations:

  • You canceled during the “free look period.” When you buy a policy, your insurer is legally required to give you time to change your mind. This is the free look period, and it lasts 10 to 30 days depending on the state you live in.
  • You bought a return of premium rider. If you cancel your coverage, you’ll be reimbursed for the premiums you paid — minus any administrative fees.

• Do I really need life insurance if I'm a stay-at-home parent?

  As a stay-at-home parent, you probably do a lot of unpaid labor, like cooking, cleaning and chauffeuring the kids around. If you die, a life insurance policy can help your family hire someone else to take over those tasks.

• I'm single and don't have any dependents. Should I buy life insurance?

  It depends. If you have co-signed student loans, a mortgage or other debts that aren’t dissolved after you die, a life insurance policy can pay those outstanding balances. That way, your loved ones won’t be saddled with your debt if you die prematurely. It’s also a good idea to buy a policy if you want to cover the costs of your own funeral.

• I'm a beneficiary. How do I claim the death benefit?

  When the policyholder dies, it’s up to you to file a claim. You’ll need to fill out a claim form and submit a certified copy of the death certificate and any other supporting information to the insurance company. The insurer will then review the claim and pay out the policy once it’s approved.