We spend our lives working to create a stable home environment for our loved ones, carefully mapping our course to reach our goals. We leave nothing to chance. And yet we often fail to build backup plans, assuming “nothing will happen to us.”
But we are all mortal. So what does the future hold for our families if we’re no longer there?
The thought is uncomfortable. But by avoiding it, we do our loved ones a disservice. Life is hard enough after the loss of a family member, without the extra burden of a financial crisis on top of everything else. Such a burden can derail a family’s entire future, leading to lost assets, lost savings, lost college funding, and more.
That’s why a rock-solid life insurance policy is the best gift you can give to your loved ones.
Understanding What Matters When It Comes to Life Insurance
Another reason we avoid the topic of life insurance? On the face of it, it’s confusing! People tune out when they hear unfamiliar terminology. That’s human nature. But it’s worth the time to understand the jargon.
Life insurance is a contract between customer and company. That contract is called a policy.
When buying a policy, the payment is called a premium.
In exchange for that premium payment, we get coverage.
The insured is covered in the event of their demise, meaning the company agrees to pay money to insured person’s designated recipient. This payout is called a death benefit.
Now let’s talk a little about how insurance companies work…
Insurance companies are a profit-making business whose model is to accept premium payments from customers in exchange for providing coverage and paying a benefit if the customer dies. A benefit payout could be hundreds of thousands of dollars, or more…an amount far in excess of how much the customer actually pays in premiums over the years.
So how does that work, if every customer will inevitably die? How does the company stay in business if they must pay out more than they take in?
They invest those premiums and play the odds. It’s a tricky business model, which is why there’s an organization dedicated to monitoring these businesses.
The National Association of Insurance Commissioners (NAIC) works closely with state regulators to ensure companies are financially viable, and can afford to pay out those benefits they promise to their customers.
No one wants to do business with a company which can’t hold up their end of the bargain. If a company makes a contract with their clients, they’re obligated to fulfill it. But what if their financial footing is shaky, or they have a history of finding excuses not to pay?
To help educate consumers, NAIC gathers data on each company and presents it to the public through their Consumer Information Source. CIS offers tons of information for customers to peruse in advance of signing up for a policy. Users can view all the companies within a specific state, then click through to see detailed reports. These reports list results based on complaint codes and trends, as well as in-depth financial information. (Keep in mind that NAIC simply compiles data. Actual complaints are filed with the specific state insurance department).
NAIC also has a helpful sister site called Insure U, a one-stop shop featuring valuable tips for policy shoppers.
In today’s world of online reviews, customers can also take to the Internet to vent their frustrations without lodging a formal complaint. Google has a review service for consumers to rate virtually any registered local business, including the local branch of major insurance companies.
When reading online reviews, bear in mind how easy it is for disgruntled customers to hop on their phone and blast out an inflammatory rant. Meanwhile, satisfied customers often don’t bother to take the time to leave positive reviews. This can lead to biased slants, giving an overly negative score for perhaps a quite reputable business. Just something to consider!
Long story short, it pays to do your homework to get a balanced, objective overview.
The 5 Best Life Insurance Companies in America
With hundreds of options out there, researching companies can take time. That’s why we set out on a mission to identify a top five list of life insurance companies in America!
The methodology was straightforward. We looked at:
- J.D. Power US Life Insurance Study findings
- Financial strength data from CIS
- Complaint trend statistics from CIS (note, due to their restrictions on data usage, we don’t list the details here…but they’re freely available on the CIS website)
- Additional online rankings and news
Now let’s review the findings:
New York Life – In business for over 173 years, New York has astoundingly strong financials and the lowest complaint index on our list. They are adept at working one-on-one—perfect for customers who want a personal touch.
Nationwide – A Top 5 J.D. Power 2018 US Life Insurance Survey business, Nationwide’s financials are extraordinarily strong and their complaint index is way below average. Nationwide values transparency—great for customers wanting to dig into details.
State Farm – J.D. Power’s highest Power Circle rated company for five years in a row. They have the highest financial ratings from A.M. Best and S&P. Complaints are far below average and they consistently do well in other rankings. A top pick for customers wanting peace of mind from a highly-vetted company.
Northwestern Mutual – Another top pick by J.D. Power, Northwest is also beloved by A.M. Best, S&P, and Fortune for strong financials. In business for 160 years, Northwest is low on complaints and high on quality. Northwest is owned by its policyholders, for customers who want a piece of the pie.
Mutual of Omaha– For over a century, Mutual of Omaha has specialized in affordable insurance. They’re financially viable, have a lower than average complaint index, and a superior rating by A.M. Best. Looking to save money? Mutual of Omaha’s premiums are considered among the best value.
Term Life Insurance or Whole Life Insurance — Which is Better?
What’s the difference between term life and whole life?
A term is a set period of time (5, 10, 15 years, for example). Term insurance provides coverage for the term the customer selects, and pays a death benefit if the insured person dies during that period.
Whole life provides coverage for one’s entire lifespan.
Everyone’s situation is different, so life insurance companies offer options to suit their customers’ unique needs. Budget constraints play a part, but so do issues like benefits and personal risk.
Whole life insurance offers a death benefit and can act as a savings plan, too. As you pay premiums over the years, they accumulate a cash value. That value can be borrowed against or partially withdrawn. However it takes many years for the value to add up, and in the meantime premiums cost more. The savings come over the long term.
Term life offers no savings option. It costs less initially, so it’s a good option for those on a tighter budget and who have a higher risk of needing coverage during a certain period. The trick is knowing what the premiums will cost if the customer opts to renew that policy after it expires. If their health declined, premiums could be higher! In some cases a company won’t offer renew a policy.
To put in plainly, if a customer feels their odds of passing during a certain term are high, they may only need a term policy. If they’re young and in good health, whole life could make more sense and serve double duty as an investment plan.
Here are some examples:
- Rick is a 23 year old officer worker starting out with a new family, so he may want to invest in whole life as an investment.
- Janice is in her 70s and has some illnesses. Her kids are grown and doing well. She might consider a term life policy a better option.
Special cases may require additional consideration, for example:
Vikki and Lewis are parents of a Michael, a boy with special needs. Vikki works, but Lewis must stay home with Michael. They might consider whole life because they have higher risk in the event of lost income. Plus, Michael may be dependent on long-term financial support as an adult later.
Some customers purchase whole life, and add a term life policy later to beef up coverage during a time of increased risk.
Getting the Best Life Insurance Quote
As Ben Franklin said, “A penny saved is a penny earned.”
Over the life of a policy, customers can save thousands if they shop around and request multiple quotes. It’s simple to get a “ballpark” quote online, but a live agent can ask and answer questions, fine-tuning a no-obligation quote so you know what you’re getting and what it’ll cost.
A reputable agent can discuss your financial situation to help determine what policy is within your budget and how much coverage is actually needed. For instance, customers want to buy enough to pay off an debt which could be passed to the surviving family.
For whole life, an agent can break down how cash value grows. For term life, they’ll talk about renewal options and “what if” scenarios which affect costs. There are numerous personal factors which impact premiums, so an agent can explain the role each plays.
Top factors include:
- Age – younger customers tend to save more
- Gender – historically, women live longer and pay less
- Health history of you and your immediate blood relatives – a history of serious illnesses can drive up costs
- Current health – this can be determined after a medical exam, if needed. The healthier a customer, the less they pay
- Weight – due to the link between weight and other health issues, an overweight customer tends to pay more
- Occupation and hobbies – dangerous or high-risk jobs and hobbies drive up costs, but companies evaluate risk differently
- Tobacco and alcohol use – both may be considered health risks, increasing premiums
Again, the best way to save is to call and compare policies from reputable companies, sharing your personal details and talking through options. Decide the questions you’re going to ask in advance. For instance, if you move out of state, will your policy to be valid in the new state? Not all companies are licensed to offer coverage in all states.
Be thorough and honest when answering questions…and take lots of notes! You want to compare apples to apples as you review prices from companies, so stay organized and make sure that the details of the policies match up.
Bottom line: by taking out the right life insurance from a reliable company, customers can ensure enough money is set aside for the financial security and stability of their loved ones. It’s one of the best investments a person can make, and it pays to get it right!
