What is life insurance?
Life insurance is an agreement between you (the policyholder) and an insurance company that pays out if you die while the policy is in force. The goal is to provide a financial safety net, so your family or loved ones won’t have to worry about paying bills, final expenses, or other financial responsibilities in the absence of your income.
What does life insurance cover?
Traditional life insurance policies cover nearly all kinds of death — whether by illness, accident, or almost any other circumstance. After you die, your beneficiaries may then use the death benefit payout to cover all kinds of expenses or debt, including:
End-of-life expenses and funeral costs
Estate planning costs
Monthly bills and mortgage payments
Child care and college tuition
Medical expenses
Other financial obligations
What does life insurance not cover?
Most life insurance companies do not cover death by suicide within the first two years the policy is in force. Life insurance also does not cover you if the insurance company discovers you’ve committed insurance fraud, in which case they can refuse to pay out the death benefit.
What are the main types of life insurance?
Term, whole, universal, variable, and final expense insurance are the five main types of life insurance policies on the market — though there are many additional subtypes.
Term life insurance
Term life insurance is one of the most popular and affordable types of insurance. It’s a straightforward policy that lasts for a specific number of years — typically 10 to 30.
Whole life insurance
Whole life insurance is a popular type of permanent life insurance, meaning your coverage will be active your entire life as long as you continue to pay the premiums. It comes with a separate cash value — a tax-deferred savings component — in addition to the standard death benefit.
Universal life insurance
Universal life insurance is a type of permanent life insurance policy that offers flexible premiums. You can increase or decrease the premiums you pay — if you decrease your payments, the difference can be withdrawn from your policy’s cash value.
Variable life insurance
Variable life insurance is another type of permanent coverage that lets you to invest the money from your cash value in various market funds offered by the insurance company, including mutual funds. While the death benefit comes with a guaranteed minimum, the cash value amount is not guaranteed and depends on market conditions.
Final expense insurance
Final expense insurance, also called burial insurance, pays a small death benefit to your beneficiaries to help cover your end-of-life expenses. Since it isn't meant to replace lost income, final expense insurance is usually only recommended for older adults who want a small policy to cover funeral costs.
Summary of the 5 main types of life insurance
Policy type | Length | Premiums | Death benefit | Cash value |
|---|---|---|---|---|
Whole life | Permanent | Fixed | Yes | Yes |
Term life | 10-40 years | Fixed | Yes | No |
Universal life | Permanent | Flexible | Yes | Yes |
Variable life | Permanent | Flexible | Yes | Yes |
Final expense | Permanent | Fixed | Yes | Yes |
How much does life insurance cost?
The cost of life insurance will depend on the type of policy you purchase, as well as your age, gender, and health. In general, the younger and healthier you are, the less you’ll pay for life insurance. A healthy 35-year-old will pay, for example, less than $28 per month for a life insurance policy with a $500,000 death benefit payout and a duration of 20 years.
Below you’ll find additional estimates for each of the main types of policies, although speaking with an agent can help you get personalized life insurance quotes for your specific profile and additional recommendations on how much coverage you need.
Methodology: Why you can trust our life insurance quotes
At Policygenius, our educational guides are written and fact-checked by licensed life insurance experts and reviewed by our Financial Review Council to ensure autonomy, expertise, and accuracy. Our rates are based on internal actuarial rate tables for ten life insurance carriers that offer policies through the Policygenius marketplace (AIG, Banner Life, Brighthouse, Lincoln Financial, MassMutual, Mutual of Omaha, Pacific Life, Protective, Prudential, and Transamerica), and the Policygenius Price Index, which uses real-time rate data from leading life insurance companies to determine pricing trends. The prices represent the average monthly life insurance premium for each sample customer profile (age, gender) and policy type (term or whole, and coverage amount) as of the date reflected on each table's methodology. Rates for those products may vary by state, and not all products are available in all states. Individual rates may vary, depending on age, gender, state, health profile, and other eligibility criteria.
How much does term life insurance cost?
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1 million coverage amount |
|---|---|---|---|---|
25 | Female | $14.39 | $21.01 | $32.53 |
Male | $17.26 | $27.13 | $43.73 | |
35 | Female | $16.71 | $25.76 | $42.01 |
Male | $18.88 | $30.79 | $51.05 | |
45 | Female | $28.90 | $48.43 | $86.32 |
Male | $35.84 | $61.49 | $112.47 | |
55 | Female | $61.86 | $111.35 | $206.69 |
Male | $84.59 | $153.76 | $281.13 |
Methodology: Average sample monthly rates are for male and female non-smokers with a Preferred health rating buying a 20-year, $250,000, $500,000, and $1,000,000 term life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from Banner Life, Brighthouse, Corebridge Financial, Foresters Financial, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica, and may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 07/01/2023.
How much does whole life insurance cost?
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1 million coverage amount |
|---|---|---|---|---|
25 | Female | $180 | $356 | $697 |
Male | $209 | $413 | $810 | |
35 | Female | $251 | $498 | $981 |
Male | $309 | $612 | $1,210 | |
45 | Female | $389 | $773 | $1,532 |
Male | $478 | $952 | $1,858 | |
55 | Female | $635 | $1,266 | $2,517 |
Male | $775 | $1,545 | $3,038 |
Methodology: Monthly rates are calculated for non-smokers in a Standard health classification, obtaining a whole life insurance policy payable within 99 years from MassMutual. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 07/01/2022.
How much does universal life insurance cost?
Since universal life insurance comes with flexible premiums by definition, the cost can vary drastically from policy to policy. Below are sample guaranteed universal life insurance rates, a popular type of universal life insurance.
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1 million coverage amount |
|---|---|---|---|---|
25 | Female | $79 | $137 | $245 |
Male | $89 | $160 | $291 | |
35 | Female | $117 | $213 | $393 |
Male | $130 | $242 | $452 | |
45 | Female | $187 | $342 | $646 |
Male | $207 | $393 | $744 | |
55 | Female | $291 | $560 | $1,074 |
Male | $331 | $639 | $1,232 |
Methodology: Monthly rates are calculated for non-smokers in a Standard health classification, obtaining a guaranteed universal life insurance policy through Pacific Life Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 07/01/2023.
What factors affect life insurance costs
Your age, gender, health, and lifestyle are the main factors that determine how much you pay for life insurance. Each insurer considers each differently, so it’s important to shop across multiple insurance companies to find the most affordable rates for your specific situation. Here’s how each aspect is factored in.
Your age
The younger you are, the cheaper your premium payments will be. In fact, life insurance rates go up anywhere from 4.5% to 9% every year we age, since we all become riskier to insure as we grow older.
Your gender
Since women often live longer than men, covering women presents less near-term risk to an insurance company. As a result, women pay an average of 24% less for life insurance than men.
Your health
Your health plays a crucial role in determining your life insurance rates. Serious health conditions can lead to high rates or denied coverage, while milder conditions may only have a small impact on the cost of your premiums. If you have a pre-existing health condition, speaking with an independent broker can help make sure you get the best rates.
Your lifestyle
Insurance companies consider some hobbies — like skydiving or scuba diving past a certain depth — risky enough to increase the cost of your life insurance premiums.
What are the best life insurance companies?
Banner Life, Lincoln Financial, Protective, Corebridge Financial, Pacific Life, and Brighthouse Financial are some of the best life insurance companies on the market, according to Policygenius’ ratings (our methodology includes industry data, pricing from Policygenius carrier partners, and third-party ratings like A.M. Best and J.D. Power).
In general, it’s important to buy life insurance from a reputable company, so that you know it’ll be around to pay your claim if you need it to. You also want to make sure you’re going with a company that’s offering you affordable rates you can comfortably pay for the duration of your policy.
The best life insurance company for you might not be the best life insurance company for someone else. Your age, health, and need for life insurance in the first place will help determine which policy is the best fit for you.
Methodology: How we chose the best life insurance companies of 2023
We don't get paid for our company reviews and use an extensive rubric of criteria covering policy details, price, financial confidence, third-party ratings, and customer experience to assign unbiased ratings out of five stars. Any recommendations we make are based on internal and external expert opinions and data from our Policygenius Price Index, which uses real-time rate data from leading life insurance companies to determine pricing trends.
Our ratings and reviews can help point you to an insurer you can rely on for your family’s financial protection, but the best life insurance company for you is dependent on multiple factors. A licensed agent at Policygenius can work with you through the application process so you’re getting coverage from the best insurer for your circumstances at the most competitive price.
Summary of the best term life insurance companies of 2023
Company | Policygenius rating | A.M. Best rating | J.D. Power rating | Best for | |
|---|---|---|---|---|---|
4.7/5 | A+ | N/A | Overall, term, pre-existing conditions, cheapest | ||
4.7/5 | A+ | 773 | Marijuana users, depression | ||
4.9/5 | A+ | 752 | Cheapest | ||
4.6/5 | A | 729 | Families, anxiety, sleep apnea | ||
4.6/5 | A+ | 801 | Customer satisfaction | ||
4.6/5 | A | 714 | No-medical-exam, young adults | ||
4.4/5 | A | 747 | Visa & green card holders | ||
3.8/5 | A++ | 782 | Whole, AM Best ratings | ||
3.6/5 | A | N/A | Cancer | ||
3.4/5 | A+ | 753 | Seniors |
What are the main components of a life insurance policy?
The insurer, the policyholder, the death benefit, and the beneficiaries are some of the main components of a life insurance policy. Below you’ll find a full list of the components of a life policy and what they mean. These terms can help you understand your life insurance policy as you’re reading through it.
The insurer
The insurer is the company that issues the life insurance policy. They’re the one who will pay out the death benefit if needed.
The policyholder
The policyholder is the owner of the life insurance policy. In most cases, the policyholder pays the premiums and maintains the policy. They’re authorized to make changes to the policy, too, if they need to.
The insured
Most commonly, the policyholder and the insured are the same person. The insured if the person who’s covered by the policy. When they die, the life insurance company pays out the death benefit.
The death benefit
The death benefit is the amount of money the beneficiaries get if/when the insured dies. It’s most commonly paid as a tax-free lump sum.
The beneficiaries
The beneficiaries are the people who receive the death benefit when the insured passes away. Most commonly, people list their spouse, adult children, or another trusted family member as beneficiaries.
The policy length
The policy length refers to how long the policy will be active. With term policies, this is typically 10-30 years. Permanent policies last your entire life– many endow, or mature, at age 100.
The premium
The premium is the money you pay to keep your policy active. Most often, premiums are paid either monthly or annually.
The cash value
The cash value is a feature that comes with many permanent life insurance policies — it provides a separate account within your policy that earns interest at a fixed rate. The longer you’ve been paying into your policy, the higher your cash value will be.
The riders
Riders are optional add-ons you can use to customize your policy. Some policies come with riders automatically included, like the accelerated death benefit rider, which allows you to request a portion of your death benefit ahead of time if you become terminally ill. With other riders you’ll pay extra — for example the child rider, which comes with an additional, smaller death benefit to cover your children in case they pass away.
How to choose a life insurance beneficiary
You should choose a beneficiary who’s financially tied to you, or who you can trust to receive the death benefit on your behalf.
Many choose to name their spouse or adult children.
If your children are minors, you can also list a family member who would be their guardian in your absence.
However, Policygenius recommends using estate planning tools like trusts to ensure the money is used the way you want it to be used.
How to pay a life insurance premium
Most premiums can be paid on a monthly or annual basis.
Most life insurance companies will have you set up payment through an automatic electronic funds transfer tied to your bank account.
Some companies will allow you to pay with a credit card for recurring payments, but this is less common and it depends on the insurer.
How to make a life insurance claim
Filing a claim as soon as possible can lift some of the financial stress of losing a loved one. Here's how the process works.
Your beneficiaries will need to collect important documents such as the death certificate and the existing life insurance policy documents.
They’ll contact your insurance company to file a claim and verify their identity, so the insurance company can pay out the benefit.
How life insurance death benefit payouts are paid
Beneficiaries can choose to receive the death benefit in several different forms, most commonly in a lump sum or installments.
When you receive the benefit in a lump sum, it’ll be tax-free.
Choosing to receive the benefit in installments is also tax-free, although you’ll pay income tax on any interest gained by the remaining sum of money held by the insurance company.
How do I get life insurance?
Apply online
First, you can begin the process of getting life insurance by filling out a request online with your basic details. Most people work with either an independent broker or directly with the insurance company.
Talk to an agent
Speak with an agent to confirm your application details and find the company that’s best suited for you based on your profile.
Take a medical exam
In many cases, you’ll take a free medical exam that resembles an annual physical at your doctor. The medical exam is part of underwriting, a four-to-six-week process where the insurance company reviews your application and decides your final rate.
Sign your policy and pay your first premium
After underwriting, the insurance company will extend you a final offer, which is when you’ll know your final rate. You’ll then sign your policy and pay your first premium for your coverage to be active.
Life insurance FAQs
How does life insurance work in simple terms?
You pay an insurance company a premium monthly or annually, and in exchange the company will pay out a lump sum of money to your loved ones listed as the beneficiaries if you die while the policy is active.
Who needs life insurance?
Generally speaking, anyone who has dependents or others whose livelihoods depend on their income should have life insurance.
Can I get life insurance if I have a pre-existing condition?
Yes, in many cases, having a pre-existing condition does not prevent you from getting life insurance, but it depends on your specific health circumstances.
How long do you have to pay life insurance before it pays out?
Your life insurance policy is active as soon as you pay your first premium. This means that there’s no waiting period for the death benefit to pay out, assuming there’s no insurance fraud involved.
Is life insurance a good investment?
Life insurance serves as a financial safety net for your loved ones as a primary purpose. Permanent life insurance products do have an investment component, but it’s best to speak with a financial advisor since there are other traditional investment strategies that are less risky and typically yield higher returns.
Is life insurance worth it?
If you have people who depend on you financially and you can afford a policy, purchasing life insurance is worth it. Having a policy can make a significant impact on your family’s well-being.
