Life insurance is a lot like an umbrella. You don’t need it unless it starts to rain, but you are certainly thankful that you have one when caught in a downpour. With so many insurance companies offering a bewildering array of insurance products with names like universal life insurance, it can be difficult to know which is the right insurance for you. In this article, we will demystify the life insurance products and share our top picks for the best life insurance companies.

What do you need to know about life insurance?

When it comes to life insurance, there are many types to choose from. An insurance agent might try to sell you a whole life insurance policy when a term policy might be better suited to your needs. The best way to pick a policy is to understand the basics of life insurance and make an informed decision based on the best match for company reputation, specific policy features, pricing, and personal circumstances.

Another thing to keep in mind when buying life insurance is that the earlier you buy life insurance, the better. Generally, life insurance premiums increase as the policyholder gets older.

How much insurance is required?

To calculate how much insurance an individual needs, experts recommend the DIME method. DIME stands for debt, income, mortgage, and education. It is a calculation that helps estimate how much insurance an individual’s family might need in the case of their death by summing up any outstanding debt, all the income they’d lose out on, the mortgage on the house (if any), as well as the cost of a college education for any children.

Term vs. permanent life insurance

The two main types of life insurance are term and permanent. Most people need term insurance since it provides coverage for a set period of time, and protects the policyholder’s beneficiaries in case of his/her death. Term life insurance is usually much cheaper than whole life insurance.

What is term life insurance?

Term insurance is a type of life insurance policy that provides coverage for a set period of time or a specified “term” of years. Common periods are 10-, 20- and 30-year terms. In case the policyholder dies during the time period while the policy is active, a death benefit is paid.

Term insurance is much less expensive than permanent life insurance, but unlike most types of permanent insurance, it has no cash value. This means that the only monetary benefit of a term life insurance is the guaranteed death benefit.

In the event the policyholder dies after the term expires, there will be no coverage or payout. Policyholders can extend or renew their insurance, but this may mean paying a higher premium than before when the policyholder was younger.

What types of term life insurance are available?

There are several types of term life insurance products offered by various insurers.

• Level Term – A fixed cost (level premium) is charged periodically, typically monthly, to the policyholder. The premium covers the costs of providing the benefits that come with the policy, such as a guaranteed death benefit. The premium is based on factors such as age, health, history of smoking, life expectancy, and other factors. Depending on the policy selected, a health exam may be required by the insurer. 
• Convertible Term – A convertible term policy can be converted into a whole life or permanent insurance before the term expires. The major advantage of this type of insurance is that the policyholder is exempt from a medical exam and health conditions are not considered when the term policy is converted to permanent. 
• Increasing Term – In this type of policy, policyholders are required to pay lower premiums early on in life, when they have greater financial demands. The premium increases with time, but the increasing term prevents the policyholder from having to qualify for another term insurance at an older age to get the added benefit. 
• Decreasing Term or Mortgage Term – In the decreasing term policy, which is the opposite of the increasing term, the death benefit amount decreases with time. the aim of this policy type is to match the decline of the death benefit to the reduction of the policyholder’s outstanding mortgage. This means that you won’t need as much death benefit if you have less mortgage debt. Even though the premiums in this type of insurance are less than standard term life insurance, the premiums are still fixed throughout the term.
• Annual Renewable – In this type of insurance, the term insurance is renewed annually but the premium also increases annually. This is not the most cost-effective solution for everyone due to the increased cost over time.

What is permanent life insurance?

Permanent life insurance includes all types of insurance policies that do not expire. They typically consist of a death benefit along with a savings portion, called the cash value. The death benefit is the money paid to your beneficiaries when you pass away, while the savings portion may be accessed by you while still alive.

Permanent insurance provides coverage to the policyholder from the time they buy the policy to the time of death, as long as the required premiums are paid. Term policies can usually be converted to permanent policies. The two types of permanent life insurance are universal and whole life insurance.

What is universal life insurance?

Universal life insurance is permanent life insurance that consists of investment savings and has low premiums like term insurance.  While most universal life insurance policies have flexible premium options, some require fixed premiums (scheduled fixed premiums) or a single lump-sum premium.

How universal life insurance works

Universal life insurance offers more flexibility than whole life insurance, as policyholders can adjust their premiums and death benefits. The premiums consist of two components: a savings component and a Cost of Insurance (COI) component. The COI includes the charges for mortality, policy administration and other expenses associated with administering the policy.

The COI of universal life insurance is the minimum amount of premium required to keep the policy active. Collected premium that exceeds the cost of insurance will accumulate within the cash portion of the policy. Typically, the COI will increase as the age of the policyholder increases, however, the accumulated cash value will cover the increases in COI.

Like a savings account, the cash value in a universal life insurance policy earns interest based on the current market or minimum interest rate. As the cash value increases, policyholders can withdraw a portion of the cash value without affecting the guaranteed death benefit but will have to pay tax on the withdrawals. However, borrowing money against the accumulated cash value has no tax implications.

What is whole life insurance?

While universal life insurance provides flexibility in premium payments, death benefits and the savings element of the policy, whole life insurance offers consistent premiums and guaranteed cash value accumulation.

How whole life insurance works

Whole life insurance provides policyholders coverage for as long as they live. This policy is highly suitable for long-term responsibilities like a surviving spouse’s income needs and post-death expenses. The policyholder needs to pay a fixed premium for a specific period in order to receive the death benefit.

The insurance company invests a portion of the money from premiums into a high-interest bank account, which lets the cash value accumulate over time. One advantage of this is that policyholders can take advantage of tax-deferred savings growth, while also having the option to borrow against the cash value or to surrender the policy to get the cash value.

Policyholders can choose to receive dividends every year from their insurance companies, or let the dividends be reinvested and accumulate interest.  The dividends can also be used to reduce premium payments or to buy additional coverage.

If you opt for whole life insurance, it is important to keep in mind that it is better to buy whole life insurance when you are younger to afford it in the long term. Unlike term insurance, the level premiums and fixed death benefits make this kind of policy quite expensive.

Is universal or whole life better?

While both whole and universal insurances provide coverage for the entire life of the policyholder, there are some key differences:

• Universal life insurance premiums are typically lower during periods of high-interest rates than whole life insurance premiums, often for the same amount of coverage. Also, while the interest paid on universal life insurance is usually adjusted monthly, interest on a whole life insurance policy is normally adjusted annually. This can lead to universal life insurance policyholders seeing their cash values increase at a rapid rate compared to those in whole life insurance policies during periods of rising interest rates.
• Whole life insurance offers fixed premiums and guaranteed cash value accumulation, while a universal policy provides flexible premiums, savings options, and death benefits.

The decision between the two options boils down to each individual’s needs. If you prefer a set death benefit, level premiums and the potential for growth, go for a whole life policy. However, if you want more flexibility and choice in permanent life insurance, opt for universal insurance.

How to choose an insurance provider?

Since there are hundreds of insurers offering life insurance products, it’s up to the buyer to pick one that will not only make the application process as painless as possible but also one which is will honor the insurance claim in case of death. Here are a few factors to consider when picking an insurance provider.

• Financial Strength – The primary concern for any insurance company should be its financial health. A company that is doing well financially and has a wide customer base will still be around in 20 or 30 years’ time. to check if a company is doing well financially, check their ratings from independent rating agencies. 
• Product Offerings – Most insurance companies offer a range of insurance products, so choose a company that offers the product and features that meet your needs. This could include variable premiums, term insurance of a particular insurance, health checkups, or riders to customize the policy. 
• Identity – Life insurance companies can have similar-sounding or confusing names. Many insurers have names that suggest financial strength, maturity, breadth of operations, respectability, fairness or a long history. Confirm the full name, address, and affiliation of any company that may be under consideration. 
• Claims – Buyers can check a national claims database to see if the insurance company under consideration has had many complaints about its services relative to the number of policies sold.
• Customer Service – Since life insurance is complex for many people, a company’s customer service and support can make all the difference in navigating through the complexities of insurance. Look for a company with agents available nearby, as well as those that are highly rated for customer service by agencies like the Better Business Bureau. 
• Price – The premium for a policy doesn’t have to be the same as the cost of protection. Due to differences between different policies in terms of benefits, and dividends, it can be hard to compare them. 

To identify each policy’s cost, look at its Net Payment Cost Index and its Surrender Cost Index. The Surrender Cost Index should be used if the insurance is meant only for a specific period of time, while the Net Payment Cost Index should be used if the policy will be kept indefinitely. Generally, the lower the cost index, the better.

Finding the best life insurance company involves taking into consideration the plan features, financial strength, price and customer service. With hundreds of insurance companies available, each selling similar products, it can be challenging to find the right one. We’ve done the legwork and rounded up the best life insurance options for small business owners.

Northwestern Mutual

• Overall: 4.7
• Features: 4.7
• Price: 4.3
• Website: 4.6 
• Customer Service: 4.7

Northwestern Mutual is headquartered in Milwaukee and offers term, whole and universal life insurance policies. As a mutual company, Northwestern is owned by its policyholders, of whom some are eligible to share in annual dividends. It is highly ranked for customer service in J.D. Power’s 2019 U.S. Life Insurance Study.

Northwestern offers a term life policy that can be converted to a permanent policy with no medical exam and no fees and allows for most policy types to be customized. It is offered with custom terms and is available with both annually increasing and level premiums.

Whole Life Plus is the company’s only whole life insurance policy, and includes a lifetime coverage period, guaranteed level monthly premiums, and is available for customers from 0 to 80 years old. However, the insurance is only available through Northwestern Mutual financial professionals, and they don’t offer calculators or quotes online.

Pacific Life

• Overall: 4.3
• Features: 4.6
• Price: 4.3
• Website: 4.3 
• Customer Service: 4.2

Pacific Life is a nationwide insurance provider based in California and offers a wide variety of policies that suit a wide range of circumstances. The company ranks reasonably well in the JD Power customer satisfaction ranking.

Pacific offers two types of term life policies, with duration ranging from 10 years to 30 years. The level-premium product has fixed-price premiums for the life of the policy, while the annual renewable product is renewed annually and the price changes each year.

Pacific also offers two types of universal life policies; a variable policy that the customer can adjust their policy’s investment allocation, and an indexed variable policy that offers index-based interest crediting rates. The indexed variable policy contains a guaranteed minimum interest crediting floor.

The website has some useful tools and an online calculator, however, it lacks an insurance quote calculator.

Guardian Life

• Overall: 4.3
• Features: 4.3
• Price: 4.1
• Website: 4.3 
• Customer Service: 4.2

Guardian is one of the country’s largest mutual insurance companies and offers a wide range of personal insurance products. Policyholders are eligible to receive annual dividends if the business does well that year. It holds an A++ rating from A.M. Best, which means it has the financial strength to pay any claims its policyholders may have.

Guardian’s customer satisfaction score on the JD Power survey is a bit lower than those of State Farm and Northwestern Mutual, but it has improved over the previous year.

Guardian offers whole, universal and variable life insurance and it provides an option to insure two people on the same policy. It also has term life plans of 10, 15, 20 or 30 years. 

The website is different from those of other insurers, with illustrations,  video case studies, and a tool that provides quotes for life insurance.

State Farm Life

• Overall: 4.5
• Features: 4.3
• Price: 4.6
• Website: 4.6
• Customer Service: 4.6

State Farm has financial strength – it is one of the biggest auto insurers in the US – and has a financial rating of A++, essentially guaranteeing that it will have no issues fulfilling commitments to its policyholders. With a vast network of over 18,000 agents around the nation, finding one near you should be fairly easy. The company also enjoys strong customer satisfaction ratings on the JD Power survey.

State Farm offers term, universal, and whole life insurance policies. The term life insurance offers coverage for a specific time period. The whole life insurance product has level premiums for the life of the policy. Finally, universal life insurance offers flexible premiums and death benefits.

While the website is a little hard to navigate, it has a useful ‘life-stage’ planner, as well as a life insurance calculator that helps figure out how much insurance you should purchase. You can get a customized quote from their online quote tool.

New York Life

• Overall: 4.3
• Features: 4.3
• Price: 4.3
• Website: 4.6
• Customer Service: 4.0

New York Life is a mutual insurance company, so eligible policyholders will receive dividends when the company performs well. In JD Power’s life insurance survey for customer service, it scored 4 out of 5 stars, which is good but not excellent.

New York Life doesn’t offer a lot of banking or other financial services. While this might problematic for customers looking for a one-stop financial solution, the firm has a strong business focus on life insurance and offers a small selection of high-quality insurance products.

The company offers term policies with fixed premiums for 10- and 20-year terms, both of which can be converted to whole life insurance. Another option is a convertible yearly term life product with guaranteed annual price increases.

The website doesn’t have comprehensive information on the insurance offerings, nor can you get a quote online. Its recommended to learn more by calling their helpline or speaking to an agent or financial advisors.

Nationwide

• Overall: 4.1
• Features: 4.2
• Price: 4.2
• Website: 4.2
• Customer Service: 3.8

While best known for car insurance, Nationwide also offers homeowners and life insurance products. The insurance product range includes term life, whole life, universal life, and variable life insurance.

Nationwide’s term life insurance includes 10-, 15-, 20- or 30-year policies, many of which can be converted to permanent life insurance at the end of the term. Each policy is guaranteed to have level monthly premiums, and are only available through Nationwide agents. Nationwide’s prices are generally on the lower end.

On the downside, most types of policies don’t offer online quotes, and some of the universal life insurance products may be confusing. On the plus side, Nationwide’s policies can be easily customized, and customers have access to easy payments via direct debit, credit cards, and online payments. The website offers a coverage calculator, online estimates and online document processing.

TIAA CREF

• Overall: 4.5
• Features: 4.3
• Price: 4.3
• Website: 4.6
• Customer Service: 4.7

While TIAA stands for Teachers Insurance and Annuity Association, anyone can apply for TIAA life insurance. TIAA offers one of the most affordable term life products, although prices will vary from person to person. The company offers excellent customer service, with its call center agents focusing on answering questions and solving problems rather than sales tactics.

The life insurance policies range from 10 to 30 years and start from $100,000. The company has generous conversion allowances in case your needs change or you change your mind later. Unlike many insurers, TIAA only offers universal life, not whole insurance. TIAA has consistently low premiums and generous term to permanent conversion options.

TIAA offers an online tool called “Life Wizard” that can generate a coverage analysis, quote, and process the application. However, Life Wizard is only for term life insurance, not for the permanent universal insurance. The company has a strong financial outlook, with an A.M. best rating of A++, so insurance claimants should have no trouble getting paid.

MassMutual

• Overall: 4.1
• Features: 4.2
• Price: 4.3
• Website: 4.3
• Customer Service: 4.2

Headquartered in Springfield, Massachusetts, MassMutual has been offering life insurance and financial services since 1851. The company offers a variety of life insurance policies in addition to retirement planning, financial wellness expertise, and investment management services. Being a mutual company, MassMutual pays out annual dividends to members and eligible policy-holders.

MassMutual offers term life, whole life, universal life and variable universal life insurance, all of which require medical underwriting. These policies are only available through the company’s representatives. MassMutual does, however, offer a Direct Term life insurance that can be applied for online.

MassMutual scores about average for Customer Satisfaction in the annual J.D. Power 2019 life insurance companies. On the downside, many desirable features such as an accelerated death benefit, survivorship benefits, estate protection, and disability benefit are available only through riders. A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy and may cost extra.

An online insurance calculator on MassMutual’s website can be used to help determine the best type of life insurance policy and coverage amount for you. Bills can be viewed online and recurring premium payments can also be set up.