Life insurance comparison: A purchaser’s guide
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If you're considering purchasing a life insurance policy, it's important to get up to speed on the basics and do some "comparison shopping" before moving forward. This article will help you better understand life insurance and show you how to compare various life insurance options, coverage, quotes and companies. So put yourself in a better position to make the right decisions and, possibly, to save some time and money along the way by learning how to:
Get an instant Term Life quote
What is life insurance and why should you consider it?
A life insurance policy is a contract between you and an insurance company. The basic terms tend to be simple: You make payments – "life insurance premiums" - to the life insurance company; in return, they promise to pay your family or dependents a lump sum of money if you die.1 This "death benefit" is usually income tax-free.
Not everybody needs life insurance. For instance, it may not be necessary if a person doesn't have a spouse, partner, children, elderly parents, or other dependents – and doesn't plan on having them in the future. However, it may be essential for anyone who has – or plans on having – one or more financial dependents. With life insurance in place, your dependents are guaranteed a measure of financial stability in the event of your death and the loss of income from your salary, pension, or social security. With no life insurance in place, loved ones may be left with expenses and debts from mortgage or rent payments to health care and college tuition – financial obligations that they may not be able to handle.
If you decide you need life insurance, you should consider comparing the different types of coverage – term life insurance, whole life insurance, universal life insurance – to decide which is best for your needs. Then, think about how much coverage you may need, so you can start to get and compare life insurance quotes from different companies. Finally, you should know how to compare life insurance companies to determine which provides the level of protection, stability, and customer service you want.
Comparing different types of life insurance policies
Life insurance isn’t a one-size-fits-all product. Different types of coverage are designed to meet different needs. So if you're making a life insurance comparison, it’s important to take a minute to get familiar with the basic choices.
Term Life Insurance
A term life insurance policy covers you for a specific term, typically between 10 and 30 years. Importantly, your life insurance cost will typically be lower with a term policy than with a permanent life insurance policy with the same death benefit amount. However, when the term expires, your coverage is gone, and you either have to do without life insurance or get a new policy -- and typically life insurance rates will be higher because you are older. That said, many providers, including Guardian, let you convert a term policy to a permanent life insurance policy for part or all of the coverage period.
Permanent life insurance: Whole Life
A whole life policy is the simplest form of permanent life insurance, providing coverage that lasts your entire life as long as the policy remains in force. Like other permanent policies, it includes a cash value that grows over time on a tax-deferred basis, so you don't pay taxes on the gains.2 Compared to other forms of permanent life, a whole life policy can provide the most guarantees:
The premium payment remains the same for life
The death benefit amount is guaranteed
There is guaranteed cash value growth
Cash value provides important benefits you can use while you're still alive. For example, you can take out personal loans against it (however, any outstanding loans will be deducted from the death benefit).3 you can also use the policy's cash value to help pay your premiums and keep your coverage in later years. Or, you can even use the policy's cash value for funds to supplement income in retirement. And when you get a whole life policy from a mutual company, such as Guardian, your cash value can also earn annual dividends.4 While not guaranteed, Guardian has paid dividends to its whole life policyholders for more than five years.
Permanent life insurance: Universal Life
A universal life policy is another form of permanent insurance that offers lifetime coverage and a cash value.5 But there's a fundamental difference compared to a whole life insurance policy: the premiums are variable. This gives flexibility to people with income that fluctuates. With universal life insurance policies, you can raise or lower your premiums as you see fit, within the policy's limits. However, paying less could result in the need to pay higher premiums in later years to keep your coverage.6 Even so, this type of policy can adjust to life circumstances while providing cash value growth. Having another child, moving on to a different job, or taking out a loan to buy a business — might all be instances where this combination of stability and flexibility is needed.
Securing and comparing life insurance quotes
Once you have an idea of which type of coverage may work best for you, the next step is to determine how much coverage (death benefit) you need. Then you can get quotes to see how much that coverage might cost.
In simple terms, you want a death benefit that's large enough to provide financial protection by paying for the bills and expenses you won't be able to help with if you're gone. If you're the primary earner, that includes things like rent or a mortgage, credit card debt, college tuition, and health insurance. Even if you're a part-time worker or stay-at-home parent, you should consider enough insurance to pay for childcare expenses and funeral costs. Basically, you need enough to cover all the extra costs your dependents may have in your absence, especially while your children are still at home. Typically, the more dependents you have and the younger they are, the more coverage you need.
Determining How Much Coverage You Need
There are many ways to estimate the amount of coverage you may need, but for now, we’ll focus on three of the most popular. Once you get closer to purchasing a life insurance policy, consider talking to a financial professional or insurance agent to get a more exact number.
1. Using Human Life Value*
Based on the value of your future earnings, a simple way to estimate this is to get 30X your income if you're between 18-40; 20X income if you're between 41-50; 15X income if you're between 51-60; and 10X income if you're between 61-65. After age 65, the coverage amount is based on net worth rather than income. If you are above age 65, you might want to discuss your needs with a financial professional or insurance agent.
2. Multiplying your income by 10 – and adding college for each child
This approach is a bit simpler: Just multiply your current salary by 10, then add enough to cover college tuition expenses. How much should you add for each child? College isn’t cheap: you should account for somewhere between $100,000 and $150,000 per child. If you split the difference – and have two kids – that’s an extra $250,000.
3. Applying the DIME formula
This method considers future expenses in addition to future earnings. DIME stands for Debt, Income, Mortgage, and Education – four significant factors to consider when making a detailed estimate of your life insurance needs:
Debt: Total all your debts other than your mortgage. Car payments, credit cards, student loans – even personal obligations such as money you may have borrowed from a sibling to put a down payment on your house. On top of all that, add funds for final expenses.
Income: How much do you make a year? And how many years will your family need that money? It’s a tricky question to answer, but a good place to start is determining how many years until your youngest child graduates high school. For example, if you make $50,000 and have nine years until your youngest graduates high school, put down $450,000 for income.
Mortgage payments: Look at your last statement and get the payoff amount. If you have a second mortgage or HELOC (Home Equity Line of Credit), add that (if you haven’t already included it in the debt section above).
Education: Anticipated college costs for each of your children. As we said before, consider between $100,000 and $150,000 per child.
Add those four factors all up, and that’s your number. You can also make adjustments (i.e., subtract) for any current savings and life insurance you already carry.
Once you've determined a ballpark figure for how much life insurance coverage you need, you can get a quote for how much the coverage will cost. You may be surprised at how cost-efficient coverage can be. In fact, a recent study by the Life Insurance Marketing and Research Association (LIMRA) found that most people think the price of term life insurance is three times higher than the actual cost. Younger Americans are likely to say it's five times the actual cost.7
How to get life insurance quotes
You can secure quotes for term life insurance policies online, by phone, or via an in-person meeting with a life insurance agent. Generally, you'll want to begin using simple online quote calculators, which provide ballpark estimates based on a few quick questions. Some websites will let you compare term life insurance quotes from several companies at once.
This chart makes it easy to compare life insurance rates for a 20-year term life policy for applicants in excellent health. These rates for a $500,000 policy range from $183 a year for women to $9,297 for a 70-year-old man. As you can see, rates vary widely depending on the applicants age and gender. Plus, if you want a higher coverage amount, this will also increase the cost of the policy.8
Average term life insurance rates
These average life insurance rates are based on a $500,000, 20-year term life policy for applicants in excellent health.
Age | Average annual rate for men | Average annual rate for women |
|---|---|---|
30 | $220 | $183 |
40 | $332 | $281 |
50 | $817 | $641 |
60 | $2,361 | $1,656 |
70 | $9,297 | $8,204 |
Source: Quotacy. Lowest three rates for each age and risk class averaged. Data valid as of December 12, 2023.8
Wondering if you can afford life insurance?
In just a couple of minutes, our calculator can show you some term life insurance quotes to help you get a better feel for how much coverage you need and what it might cost.
Keep in mind that most initial quotes are estimates that can be revised up or down after you complete the actual application process, which will be more involved than what you'll find on an online quote calculator. The insurer needs to calculate your life expectancy and insurance risk before final rates are set; in most cases, you'll have to answer questions about your family's medical history, lifestyle, and income, and most insurance companies will have you take a medical exam.
Quotes for permanent life policies – whole life or universal life – can be requested online, but you won't get instant answers like you can for term life insurance. You will probably have to provide your name and contact information so that a professional can contact you directly. Generally, the quoting and application process for permanent life insurance is a little more complicated than it is for term life. And, as with term life quotes, the estimated premium amount may be revised up or down after the application process is complete.
Evaluating and comparing life insurance companies
Once you've secured several quotes and narrowed your search to a few life insurance companies, the last step is to make sure that – in addition to reasonable rates – the company you choose offers high financial strength ratings and scores well in areas such as claims fulfillment and customer service. Here are some of the best places to find the answers:
High Financial Strength Ratings (FSRs)
Independent organizations rate the financial strength of insurers to ensure their ability to meet obligations. A.M. Best, Standard & Poor's, and Moody’s are independent ratings agencies you can look to for more information.
High customer satisfaction scores
Customer surveys and reviews can tell you how satisfied others are with a company's services. Many in the industry consider J.D. Power & Associates to be one of the best sources of insurance satisfaction data because they conduct an annual customer satisfaction survey of more than 5,000 U.S. life insurance policyholders. In 2022 J.D. Power U.S. Individual Life Satisfaction Survey, Guardian performed above industry average and ranked 7 out of the 23 companies in the study. 9
Low customer complaints
The National Association of Insurance Commissioners (NAIC) collects data about complaints with state regulators. According to a recent analysis by NerdWallet, Guardian Life has had significantly fewer complaints to state regulators than expected for a company of its size over the last three years.10
Product selection and customization
Some providers focus on term insurance, while others offer both term and permanent with a variety of optional riders that tailor a policy to your needs. 11 For example, Guardian provides convertible term and permanent policies and even has options to help cover people with certain kinds of pre-existing conditions – such as certain cancers, heart disease, even HIV.
Policyholder dividends
Some insurers are owned "mutually" by their policyholders, who can receive dividend payments. So, for example, when you purchase a whole life policy from a mutual insurance company like Guardian, you may get paid a dividend helping to build your cash value further.
Direct underwriting
Some providers issue their own policies, like Guardian. Others sell policies from several different companies, which may add cost or complexity when you need to make a claim.
Taking the next step
In addition to doing your own research – such as comparing life insurance quotes - consider talking things over with an insurance agent or financial professional who can help you compare alternative options, determine which type of policy is best for your financial situation, and explain how it can be tailored to your needs. If you don't have someone to discuss insurance with, Guardian can help you find a nearby financial professional who will listen to your needs and help guide you to the right solution for you.
Frequently asked questions about comparing life insurance
Yes. You can get no obligation quotes for term life insurance policies via online quote calculators which generate quotes based on a few simple questions including age and tobacco use. You can also request quotes for permanent life insurance policies online but will probably have to provide contact information so that you can be contacted by a professional.
There is no single answer to that question. The coverage a person needs depends on their personal wishes about how to help provide for their family, as well as several more objective factors, including age, income, debts, number of dependents, and age of dependents.
Yes. Purchasing life insurance is an important financial decision that justifies doing some homework and comparative shopping. Quotes vary widely, as do life insurance company reputations and ratings.
Term life insurance covers you for a specific term, typically between 10 and 30 years, and usually has lower premiums. However, when the term expires, your coverage is gone, and you either have to do without life insurance or get a new policy, which will probably be more expensive because you are older. Permanent life insurance – whole and universal life policies - provides coverage that lasts your entire life. In addition, permanent policies include a cash value that grows over time on a tax-deferred basis, so you don't pay taxes on the gains. That cash value is a financial asset that can be accessed while you are still alive.
The answer depends on what you mean when you say "cost-effective." A term life insurance policy will always provide a bigger death benefit per premium dollar; in that sense, it's cost-effective. However, term policies only provide coverage for a limited time. In most cases, the policy holder pays premiums for, say, 10 or 20 years – likely totaling thousands of dollars – and is still alive when the term ends, so there’s no payout or residual cash value.
On the other hand, with permanent whole life, as long as the policy is in force the death benefit is guaranteed to be paid out – even if its 70 or 80 years away. Cash value also grows and can be accessed in various ways while the policyholder is living. So one way or another, with whole life insurance there is almost always at least some monetary return for the premium dollars put into the policy. And of course, if the policyholder passes away in the early years of either type of policy, the death benefit payout is typically far greater than the sum of premiums paid in.