Learn what makes a good life insurance company for every situation.
When you’re shopping for life insurance, you might be concerned about the policy more than the carrier. But choosing the right company is just as important as choosing the right policy. The best life insurance companies have strong financial stability and are rated highly by financial and consumer institutions, guaranteed to pay out death benefits and provide a list of features and services you need to build a financial safety net.
Learn more about:
|Company||J.D. Power Rating||BBB Rating||A.M. Best Rating||Market Share|
|MetLife (via Brighthouse)||799||B-||A+||7.88%|
|New York Life||774||B-||A++||5.48%|
|Minnesota Life (Securian)||N/A||A+||A+||2.44%|
|Mutual of Omaha||766||A+||A+||1.23%|
What do the best life insurance companies have in common? Everyone’s standards and needs are different, but the main four ways to judge a life insurance company are third-party ratings, company strength, company features and policy details.
There are many third-party groups that provide ratings and reviews based on different criteria. Some provide customer service-related ratings, like J.D. Power scores and Better Business Bureau (BBB) ratings. Other groups, like A.M. Best, Fitch Ratings, Moody’s, Standard & Poor’s and Weiss Ratings are judges of financial strength.
Most of the biggest life insurance companies are financially secure, and while you should look at BBB ratings, keep in mind some reviews may be from customers who had particularly positive or negative experiences that aren’t necessarily representative of the company in general. The best-rated life insurance companies have high marks all around to provide peace of mind.
Shoppers can also see how big a company is by looking at its market share and number of policyholders. Size is typically a good indicator of how well a company is doing, but shoppers shouldn’t be afraid to go with a smaller insurer, like a regional carrier or a membership carrier (like USAA), if it fits their needs.
Not all life insurance companies operate the same way. It’s important to find one that fits your needs so you don’t find dealing with them is a hassle.
Potential customers should be aware of how life insurance companies accommodate modern shoppers. Depending on the carrier, some steps in applying for or updating policies are only done via paper mail or on the phone, while some are done online. Be sure to find a life insurance company that works the way you do.
In addition to the paper versus phone versus electronic consideration, shoppers should take into account the carrier’s average application time and accepted payment methods.
From application to in-force policy, the process can take up to eight weeks, but many carriers often complete the process much quicker. Knowing if a particular company is typically faster or slower than other companies helps set your expectations.
It’s also important to know how you’re able to pay your policy premium – after all, if you don’t pay the premium, it can lapse and you won’t be covered. Most carriers accept paper checks, while some allow bank drafts (but only if you’re paying monthly), and some allow you to use a credit card only on your first premium payment. Plus, certain forms of payment may not be available in all states.
Besides the different features of life insurance carriers themselves, you also need to rate them based on the policies they sell.
Life insurance policies come in varieties. You can select between term or permanent, but that’s just the beginning. For example, you can choose to have a return of premium term policy, or if your permanent policy is whole, variable, universal or even variable universal. Some companies offer policies that allow you to skip the medical exam to speed up the application process.
Companies also offer different riders for different policies. Riders allow you to customize a policy, but your options may be limited or cost-prohibitive depending on the carrier. Make sure the company you’re looking at has the policy type that fits your needs.
Finally, look at the coverage limits. Some carriers have a minimum term length, and some only let you choose terms in increments of five or 10 years. There might also be death benefit minimums to take into account.
No matter how good a company is, you need to be sure they’re providing a policy you want before you dedicate thousands of dollars and decades of your time to them.
As you can see, there are a lot of ways to judge how good a life insurance company is. But a lot of shoppers aren’t just concerned about the positive aspects – they want to know the negatives, too.
Most concerns about life insurance – and insurance in general – is that a company won’t be there to pay out when it’s needed. After all, what’s the point in having life insurance if the death benefit isn’t available? But companies going bankrupt or not paying out are two things you don’t need to worry about.
Financial ratings are a good indicator of the likelihood of bankruptcy, but they don’t tell the whole story. Even if a company does go bankrupt, there are safety nets in place. First, life insurance companies have reinsurance – insurance for insurance companies. Reinsurance spreads out risk so a company doesn’t have the entire burden alone, and if a company goes bankrupt, they aren’t fully on the hook.
Second, life insurance companies are part of guaranty associations. That means if one declares bankruptcy, other companies – also members of the guaranty association – pick up policyholders and guarantee their coverage continues and their needs are met.
Finally, life insurance companies are legally required to have reserve ratios; like an emergency fund, those reserves are cash on hand to cover their financial obligations.
Keep in mind that there are certain scenarios where a life insurance company doesn’t have to pay out the death benefit. During the first two years of the policy, known as the contestability period, the carrier can dispute a payout if there’s suspected fraud. Suicide also isn’t covered in the first two years, and carriers may not have to pay out in the case of criminal activity (like murder).
But companies not paying the death benefit shouldn’t be your concern when you’re looking for a life insurance carrier. You should focus on the policies they provide, the cost of coverage and customer service. Financial strength is important, but it should be a given for any company you’re seriously considering.
When selecting a life insurance company:
Life insurance costs are determined largely by how risky you are to insure. That means health conditions like cancer, diabetes and a history of smoking can raise your premium considerably. On the other hand, some carriers are more accommodating with certain health conditions. Other factors include hobbies and military service. If there are any factors that you need to take into account, a licensed agent can help you narrow down your company options.
Using all of this information, create a list if your top 10 insurers and compare quotes. This process lets you immediately disregard any companies that didn’t make the cut and focus only on legitimate options.
Term life insurance lasts for a specific period of time before expiring. Because it’s the most straightforward and affordable type of life insurance, it’s the best option for 80% to 90% of shoppers.
It’s important to consider the coverage amount. Because term life is so affordable – a healthy 30-year-old can get a 20-year, $1,000,000 policy for under $40 a month – it’s enticing to pay for more coverage than you actually need. A good broker or agent can help make sure you’re not over-insuring and spending money unnecessarily. (On the flip side, they can also make sure you’re not underinsured. A $10/month policy sounds great, but might not provide all of the coverage you need.)
Also take the term length into account. Since term life expires, it’s important to know how long it will last. It’s recommended your policy stay active through your longest large debt; for most people this is their mortgage, so a 30-year policy is a good benchmark.
Finally, while term life insurance is simple, it can be customized with riders. For example, a term conversion rider will automatically turn the policy into a whole life policy at the end of the term. A return of premium will refund all premiums at the end of the term; an accelerated death benefit can be accessed early in cases of terminal illness. Customizing a policy helps it fit your needs, but some riders are unnecessary and others come at an additional cost. Know what riders you need, what riders a particular company offers and what, if anything, it costs before you settle on a policy.
Whole life insurance is a type of permanent life insurance. It doesn’t expire, and it has an investment-style cash value component. Whole life can be a good option for people with complex financial situations, so you should know how to pick the best company and policy.
The first important consideration is cost; whole life can be up to four times as expensive as a comparable term life policy, so be sure it fits into your budget.
Second, consider the financial strength of whole life carriers. This is important to keep in mind regardless, but unlike term life, you can own a whole life policy for as long as you need it. That means it’s even more important to know that a company will still be around for a long time when you’re talking about whole life.
Be sure to know the terms of the cash value component. Every whole life policy has a guaranteed interest rate; know what it is with the company you’re considering. Also take dividends into account. The strongest whole life policies are usually from mutual companies (like MassMutual, Guardian or Northwestern Mutual) that pay dividends, that can be used to increase the cash value, pay for the policy, or for retirement.
Finally, ask how the policy handles lapse prevention. A whole life policy can automatically pay premiums using the cash value. This keeps the policy from expiring, but also lowers the cash value amount available to you, so it’s important to know how your policy handles a lapse.
Whether you’re deciding between term or whole life insurance, or wondering if a different type of life insurance is best for your family, you should know what options are out there for you. Things to consider are:
Term insurance is best for most people because it’s affordable and expires when they no longer need it – when their assets are able to cover any financial needs. The cash value of permanent insurance is useful for complex financial situations but whole, variable and universal life insurance have different means of gaining interest, which needs to be taken into account.
To learn more about the options available and the differences between them, see our full explainer on the different types of life insurance.
Keep in mind that you may need to look outside the life insurance provider to make the best policy decision. If you go directly to the insurance carrier, they will only be able to help you with the policies they sell. An independent insurance agent or broker, on the other hand, can view sample insurance quotes from multiple companies and compare them, making sure you’re getting a policy that fits your needs and your budget. Not all agents will be able to do this. Captive agents work for only one insurance company and have limited options available to help, so be sure to ask which group an agent falls into before you work with them.
At the end of the day, choosing the best insurance company means finding one you’re comfortable with. That means considering financial strength, customer service, ease of use, and the types of policies they carry.