Life insurance is simultaneously one of the most important purchases you can make and one of the least discussed. Often, people have an awareness of life insurance but opt not to explore why and how to buy it. For many families, a well-designed life insurance policy can provide much-needed security and peace of mind. Fortunately, selecting the right policy for you is easier and less stressful than many fear.
Start Your Search
Like other insurance products, life insurance is created and sold by “brokers” or “producers” in the United States. These terms are specific to the field and indicate that a person has successfully passed the licensure requirements to trade in insurance. There are often additional requirements at the state level, so a broker is licensed only to sell insurance in specific states. While this process may be an annoyance for the broker, it’s a great boon to regular Americans, as it means they can rely on insurance brokers to have a specific understanding of how life insurance works in their state.
Nevertheless, many decisions about which life insurance company to use come down to which company contacted the person. Whether this contact is in the form of a television commercial, email link, or solicitation from a current auto or home insurance provider, Americans will often take a passive approach to the search. The end result? Too few Americans lack necessary coverage or have inadequate coverage for their needs.
Today, far more resources are available at your fingertips than ever before. With a few simple steps, you can find extensive information about different companies and different types of policies.
Common Providers
One of the most common life insurance solutions is purchasing it through your employer. Many American employers offer some degree of term life insurance coverage as a group policy. These policies are less expensive but don’t often provide enough coverage for the employee’s family’s needs, nor do the policies continue after the employee stops working there. Unfortunately, more than a quarter of U.S. adult life insurance policyholders rely exclusively on this inadequate form of coverage.
Larger insurance companies advertise their services both through major media outlets and by offering bundled policies alongside auto, health, and homeowner’s insurance. These companies often claim that Americans can save significant percentages on their premiums by purchasing multiple policies. While it is true that these companies offer discounts on other insurance products for multiple policyholders, astute consumers should still take the time to compare the actual costs and coverage.
You can also receive different services from varying local agencies. Often, these local agencies work in tandem with large providers to simplify their systems and associate with established companies. Another option is working directly with the larger companies, speaking over the phone or the internet with a licensed broker. Even though this option has less of a personal touch, you may still receive quality service and coverage.
Differentiating the Options
There are two major categories of life insurance: whole insurance and term insurance. Whole life insurance is a denser product, giving more robust protections in terms of the likelihood of payout and flexibility of the policy. It is often purchased voluntarily as an individual policy rather than as part of a group policy. Many people choose whole life insurance specifically with funeral and estate costs in mind and to provide a nest egg for their spouse or children. These policies are lifelong but often have payment schedules that stop after a defined number of years. Further, whole life insurance policies can be considered purchased assets, as they have value based on the amount they were purchased for and do not disappear after concluding the payment schedule.
Term life insurance is more limited, so it is often purchased for more acute reasons. For example, some homeowners purchase term policies around the same time as they refinance or purchase a home, matching the length of the mortgage with a term policy that covers the total cost of the mortgage. Actions such as these can give incredible peace of mind to families that rely on a single income, as they will be able to purchase the home outright rather than face foreclosure if the worst happens.
| Whole Life Insurance | Term Life Insurance | |
| Coverage vs. Cost | Coverage is more expensive, often costing between 5-10 times as much as term life insurance. | Coverage tends to be more affordable, allowing greater coverage for less immediate financial impact. |
| Equity | Accrues equity over time and can even act as a supplement for retirement. It can be borrowed against or withdrawn early. | Does not accrue equity; term life insurance functions like a warranty purchased for electronic equipment or cars. |
| Miscellaneous | After completing the term of payment, the policy is fulfilled and can even be “cashed in” while the purchaser is still alive. | Once the term is up, the contract ends, and there is generally no payout. |
Finding the Right Company for You
The differences between companies are not as clearcut as the difference between the kinds of insurance. For example, if you’re considering two different companies’ policies, they may look nearly identical on paper. This similarity in policy is because the life insurance industry is one of the most heavily regulated industries in the United States. Therefore, when determining what company to choose, you should consider several factors:
- Payout Rate — Life insurance policies tend to have built-in exemptions that may void the policy. One common example is a suicide exemption, which will prevent a payout to the beneficiary. Some companies have a reputation for finding exemptions whenever possible, occasionally resulting in lawsuits. Search the statistics on payout rates for the company that you’re looking at to see if they generally fulfill their end of the bargain or not.
- Payout Speed — Closely related is the speed and amount of struggle a family will face in receiving the policy coverage. Some companies expedite this process, while others fight tooth and nail to avoid paying out in a timely fashion. Look up reviews and data beforehand and choose companies that will not fight your family when the time comes.
- Customer Service — This broad consideration covers everything from how friendly the insurance agents are, the kinds of relevant policies they assemble for you, and how clearly they can explain what their policies mean. Does it seem like the agent knows what they’re talking about? Do they seem to care about your unique situation? Look for online reviews and testimonies from your friends, families, and coworkers.
Purchasing life insurance is one of the most important decisions you can make. Don’t leave it up to chance to determine how — and if — you will provide for your family if the worst occurs. As the adage goes, life insurance is one of those things that is “better to have and not need than to need and not have.”
By Christopher Gallagher
Christopher has worked as a licensed life insurance agent, helping people protect their families at a reasonable cost. He has collaborated with numerous agencies to demystify and make the topic accessible to regular Americans.