Life insurance: policies, costs and best companies

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Looking for the best life insurance policy for you and your family, but not sure where to start? Read our guide to life insurance to learn more. We break down the types of coverage available, the costs, and the best companies in the industry.

A life insurance policy is a contract between you and an insurance company. In exchange for regular payments, called insurance premiums, the insurer pays money after your death. This money is paid to the people you choose as beneficiaries, usually children, a spouse or other family members.

A life insurance policy can be an important safety net if someone is financially dependent on you. Recipients can use the money to pay off debts, replace your income, or provide funds for future expenses such as tuition.

Top Reasons to Buy Life Insurance

The main purpose of life insurance is to replace your income. However, there are other motivations for purchasing coverage. Here are five top reasons people buy life insurance policies, according to a NerdWallet Study:

Types of life insurance policies

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What is the best life insurance policy for me?

To help you decide which type of life insurance policy is right for you, first ask yourself these three questions:

  1. How much can I afford to spend each month? It is important to find a policy that fits your budget. If you miss payments, the insurer can cancel your policy, leaving your beneficiaries without payment. Term life insurance is generally less expensive than permanent life insurance, and larger coverage amounts generally cost more than smaller ones. So if your budget is tight, a term life insurance policy or a small permanent life insurance policy may be suitable.

  2. How long do I want the font to last? If you need a policy to cover only a set period of time, consider term life. However, if you need a policy to pay regardless of when you die, you may need permanent coverage like whole life.

  3. What financial obligation does the death benefit cover? If you’re buying life insurance to cover burial costs, you’ll probably need a small whole life insurance policy because it usually lasts your lifetime. But if you want a policy to replace your income during your working years, a 30-year term life insurance policy may be better suited.

How much life insurance do I need?

Realize how much life insurance you need, think about your financial obligations. Then, aim to take out a policy that matches them. Use our coverage calculator to estimate your coverage amount.

Although you may have some coverage through your job, it’s usually best to have your own life insurance policy as well. Group work life insurance contracts usually not enough to meet your family’s financial needs and may end if you quit your job.

How much does a life insurance policy cost?

Life insurance is cheaper than you think. The average life insurance rate for a 40-year-old man in excellent health, it can cost as little as $26 a month for a 20-year term life insurance policy with $500,000 coverage, according to Quotacy, an insurance brokerage firm -life.

Rates can vary from insurer to insurer — sometimes significantly — so it’s a good idea to compare life insurance quotes from several companies before buying.

Average cost of a term life insurance policy: October 2022

Here are the average annual life insurance rates for a $500,000 20-year term life insurance policy for healthy applicants.

Average annual rate for men

Average annual rate for women

Source: quotient. Average of the three lowest rates for each age and risk class. Data valid as of October 19, 2022.

Average cost of a whole life insurance policy: October 2022

Here are the average annual life insurance rates for a $500,000 whole life insurance policy for applicants in good health.

Average annual rate for men

Average annual rate for women

Source: quotient. Average of the three lowest rates for each age and risk class. Data valid as of October 19, 2022.

How are life insurance premiums calculated?

Life insurance premiums are generally based on your life expectancy, which equates to the likelihood that the insurer will have to pay a claim. The higher the chances of paying a claim, the higher the premiums.

To estimate your life expectancy, each life insurance company takes into account factors such as your health, family history, lifestyle and driving record.

Two of the biggest factors that affect your life insurance premium are your age and your health.

🤓Nerdy tip

If you’re in good health, saying yes to a medical exam gives the insurer a more complete picture of your health and could lower your premium.

The best life insurance companies

Learn more about some of the best insurers by reading our life insurance reviews. NerdWallet ratings are determined by our editorial team and consider consumer experience, financial strength, and customer complaint data.

Term, integer, universal and universal variable.

Term, whole and universal.

Term, integer, universal and universal variable.

Term, integer, universal, variable universal and indexed universal.

Term, whole and universal.

Term, universal, variable universal and indexed universal.

Term, integer, universal and universal variable.

Term, whole and universal.

Find the life insurance plan that’s right for you

Make sure you and your loved ones are covered – compare personalized life insurance quotes from our partners.

Life insurance illustration of mother with young child
Frequently Asked Questions

In general, you need life insurance if your death would impose a financial burden on others. For example, if you are the breadwinner, parent, landlord, or someone with a co-signed debt, you may need coverage.

The amount of life insurance you need is based on the amount of money you want your beneficiaries to receive. When calculating your coverage amount, consider your current and future financial obligations, such as income, debts and daily expenses.

The average life insurance rate is $26 per month, according to Quotacy. This rate is based on a $500,000 20-year term life insurance policy for a healthy 40-year-old. The average monthly life insurance rate for a $500,000 whole life policy is $547.

Term life insurance and permanent life insurance are the two main types of coverage. Term life is temporary and only lasts for a set period of time. Permanent life insurance policies generally last your lifetime and include an investment component. Whole life insurance and universal life insurance are types of permanent coverage.

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