Quick hits

• A life insurance policy pays out to your loved ones if you die while the policy is in force.
• There are two kinds of policies: term and permanent.
• You may be able to buy a life insurance policy that goes into effect immediately.

When shopping for life insurance for you and your family there are decisions to be made. We’ll show you how to choose the right policy and coverage get life insurance quotes and find the best company for you.

What is a life insurance policy?

A life insurance policy is an agreement between you and an insurance company. In exchange for regular payments called premiums, the company pays out money after you die. This money goes to the people you name as life insurance beneficiaries — usually children, a spouse or other family members.

Who needs life insurance?

A life insurance policy can be a safety net if anyone depends on you financially. For example if you’re the breadwinner, a parent, a homeowner or someone with co-signed debt you may need life insurance coverage.

Beneficiaries can use the money for anything they want — to pay off debts, replace your income or cover your funeral and burial costs.

How to buy a life insurance policy

When you’re shopping for a life insurance policy these are your options:

• Online. Depending on the type of policy you want you may be able to apply and buy a policy online and get coverage the same day. This is called instant life insurance. Many insurers and brokerages use algorithms to determine if you qualify for a policy and ask a series of questions about your health and lifestyle to set your rate.
• Through an agent or broker. If you’re a high-risk applicant or just want someone to help you through the process you can go through a life insurance agent or broker. Captive agents sell policies from one company, like State Farm, while independent agents sell policies from multiple companies.
• Directly from the insurer. Most insurers allow you to buy a policy through their site, over the phone or in person. Before committing to a company make sure to get quotes to make sure you’re getting the best coverage at the best price.

Which policy is right for me?

In general there are two kinds of life insurance: term and permanent. Term life policies cover you for a set period of time, 10 or 20 years. Permanent life insurance can last your entire life and usually has a cash value component.

How much life insurance should I buy?

To determine how much life insurance you need think about your financial obligations now and in the future. Then buy a policy to match.

For example:

1. Add up any long term debts like a mortgage or college fees.
2. Multiply your annual income by the number of years you want your beneficiaries to be covered after you die.
3. Subtract any funds or assets you have now that can be used to cover these expenses.

How much do life insurance policies cost?

Term is cheaper than permanent life insurance. Whole life is more expensive than universal life.

Make sure you can afford the policy. If you miss payments the insurer can cancel your policy and your beneficiaries won’t get a payout.

Life insurance rates differ from insurer to insurer — sometimes greatly — so it’s a good idea to get life insurance quotes from several companies before you buy.

What is a life insurance quote?

A quote is an estimate; it gives you an idea of how much you’ll pay for the coverage. Quotes are based on a few details like the type of policy you’re shopping for, the amount of coverage you need and personal factors like your age and smoking habits.

How to compare life insurance quotes

It’s a good idea to get life insurance quotes from multiple companies before you buy. But when you do, make sure you’re comparing the same features from each company. For example, select the same type of policy with the same coverage amount or term length and give the same personal details for each quote. This will give you a more accurate comparison.

Quotes vs. rates

A quote is an estimate based on minimal information. Rates are what you’ll actually pay for the coverage. When you apply for a policy the insurer will collect more information about you to calculate your final rate which may be different from the initial quote.

This is your rate. Life insurance rates are based on your life expectancy. To calculate your life expectancy each life insurance company weighs factors like your health, family health history, lifestyle and driving record.

1. Life insurance ratings methodology

NerdWallet’s life insurance ratings are based on consumer experience, complaint index scores from the National Association of Insurance Commissioners for individual life insurance, and weighted averages of financial strength ratings which indicate a company’s ability to pay future claims. Within the consumer experience category, we consider ease of communication and website transparency which looks at the depth of policy details available online. We adjusted the scores to a curved 5-point scale.

Rating is 1-5. Get quotes to find your best rate. NerdWallet is compensated in exchange for coverage.

1. Insurer complaints methodology

NerdWallet examined complaints received by state insurance regulators and reported to the National Association of Insurance Commissioners in 2020-2022. To assess how insurers compare with one another, the NAIC calculates a complaint index each year for each subsidiary, measuring its share of total complaints relative to its size, or share of total premiums in the industry. To evaluate a company’s complaint history, NerdWallet calculated a similar index for each insurer, weighted by market shares of each subsidiary, over the three-year period. NerdWallet conducts its data analysis and reaches conclusions independently and without the endorsement of the NAIC. Ratios are determined separately for auto, home (including renters and condo), and life insurance.

Conclusion

In summary, life insurance provides financial protection for your loved ones when you die. There are 2 types of policies: term life insurance which covers you for a set period and permanent life insurance which covers you for life and often has a cash value component. When you buy life insurance you can buy online, through an agent or broker or directly from the insurer. You must compare quotes from multiple companies to get the best coverage and price. How much life insurance you need will depend on your financial obligations and future needs. Remember term life insurance is generally cheaper than permanent life insurance and your final rate will depend on many factors including your health and lifestyle. Use this information to make informed decisions and get the right policy for you.