If you’re worried that your loved ones would struggle to cover your end-of-life expenses, funeral insurance may be an option. Funeral insurance is a small life insurance policy that’s intended to pay for your funeral, cremation or burial, plus other outstanding expenses such as medical bills.
What is funeral insurance?
Funeral insurance policies are typically capped at low amounts, often between $5,000 and $25,000. The reason the payout — or death benefit — is small is because it’s meant to take care of a specific set of expenses.
Technically, your life insurance beneficiaries can spend the money however they choose. But it’s common to use the death benefit to pay for funeral-related expenses, including:
Funeral service, including viewing.
Burial or cremation.
Medical bills and other debt.
Probate costs.
Most insurers don’t require a medical exam for funeral insurance. Instead, approval is based on your answers to a health questionnaire. Some burial insurance policies are guaranteed issue policies that will cover any applicant, even if they have major health problems. However, these policies usually come with a two-year waiting period. That means if you die during the first two years that the policy is in force, your beneficiary will only receive a refund of your premiums plus interest instead of the full death benefit.
How much does funeral insurance cost?
As with any life insurance policy, your premiums will vary based on factors like your age, gender, health and tobacco use. For a 50-year-old, a $10,000 burial insurance policy with Lincoln Heritage may cost as little as $25 or $30 a month. But someone who’s 80 could pay monthly premiums as high as $150 to $190 for $10,000 of coverage.
Funeral insurance vs. preneed insurance
Both funeral insurance and preneed insurance are designed to cover final expenses. The key difference is that funeral insurance is a type of life insurance policy, while preneed insurance is a prepaid funeral plan.
You can buy funeral insurance through a life insurance company, while you would purchase a preneed plan directly from a funeral home. Unlike a funeral expense policy, a preneed plan doesn’t pay out to your loved ones when you die. Instead, the money goes to the funeral home — so you’re essentially prepaying for your funeral costs.
The terms of preneed plans vary by funeral home. Some services are guaranteed, which means that even if the costs go up after you purchase the plan, they’ll be covered by the funeral home. However, some services may not be guaranteed, meaning your family could have to pay extra if costs increase.
An accidental death benefit rider is a life insurance policy add-on that pays out an extra sum of money if you die in an accident. Many policies also pay the additional benefit if you die from injuries within a specified period after the accident, such as 90 or 180 days.
The higher payout death benefit is also known as “double indemnity” or “triple indemnity.” This is because it may be double or triple the amount of money your beneficiaries would get if you died of natural causes.
Accidental death benefit riders are a common option for most types of life insurance, including term and permanent life policies. They’re slightly different from accidental death and dismemberment (AD&D) riders, which offer a payout if you survive an accident or lose a limb or experience another debilitating injury, like blindness or paralysis as a result.
Accidental death benefit riders: The fine print
Examples of accidents that may be covered by an accidental death or AD&D rider include car crashes, fires, workplace accidents, falls and accidents involving firearms. The accidents that are excluded vary by insurer. Many policies won’t pay out the additional benefit if you had an accident while participating in dangerous recreational activities or under the influence of drugs or alcohol. Some insurers might not offer you the rider if you work in a risky occupation, like firefighting or law enforcement.
With some insurers, you can purchase stand-alone accidental death insurance instead of adding the rider to a life insurance policy. This coverage only pays out if you die in an accident. It’s most common among people who don’t qualify for traditional life insurance but still want their beneficiaries to receive some money if they die unexpectedly.
🤓Nerdy Tip
Fewer than 7% of deaths in the U.S. occur due to unintentional injury, according to the Centers for Disease Control and Prevention. Given that it’s far likelier you’ll die of natural causes instead of an accident, it’s important to make sure your policy’s regular payout provides enough coverage for your loved ones.
When you’re buying a life insurance policy, you may need coverage that begins right away, but full underwriting can take weeks to complete. Simplified issue life insurance is an option for people who need immediate coverage. However, that convenience comes at a cost. You’ll often pay higher premiums and receive a lower death benefit than you’d get through a standard life insurance policy.
What is simplified issue life insurance?
A traditional life insurance policy requires a medical exam and may take four to eight weeks to be in force. Simplified issue life insurance is a type of life insurance policy that bypasses the typical underwriting process and allows you to purchase coverage immediately.
With simplified issue life insurance, you’ll skip the life insurance medical exam and lab tests. Instead, you’ll provide some basic information, like your age, address, occupation, height and weight, and answer a health questionnaire.
You can apply online, by phone, or in person through a life insurance agent or broker. Usually, you’ll find out immediately whether your application has been approved or denied. If approved, you can typically have your policy in force that same day.
How does simplified issue life insurance work?
Simplified issue underwriting is available for most types of policies, including term life, whole life, and some types of universal life insurance. According to a 2020 report by the Society of Actuaries, major insurers approve about 70% of simplified issue applications
.
When you apply for a simplified issue policy, the insurance company will base its decision on the information you’ve provided. But carriers also use third-party reports to determine your eligibility, such as:
MIB Group reports. Your file with the MIB Group, formerly known as the Medical Information Bureau, shows whether you’ve applied for individually underwritten life insurance, health insurance, disability insurance, and long-term care insurance in the last seven years, along with whether you’ve been rejected for coverage
.
Prescription drug history. Insurers check databases that aggregate your prescription drug history using records from health insurance companies, pharmacies, and health care providers.
Motor vehicle records. Insurance companies will check for things like DUIs, suspended driver’s licenses and speeding tickets when they decide whether to insure you.
Some companies also use internet searches and random phone interviews to verify information. The use of criminal background screenings and medical billing data is becoming more common, as well.
Answering “yes” to a question that indicates a health condition doesn’t necessarily disqualify you. But if your answers are inconsistent with third-party information collected, your life insurance application could be referred for further review. For example, if you say you have no history of heart disease but your prescription records show you take medication for a heart condition, the insurer could require standard underwriting.
Who’s eligible for simplified issue life insurance?
Simplified issue life insurance is available to people up to age 75, according to the Society for Actuaries report. Though age restrictions vary by carrier, you’ll often qualify for a higher death benefit if you’re in the range of 16 to 55 years old.
Unlike with guaranteed life insurance, however, you can be rejected for simplified issue insurance. If you have a serious underlying health issue or you engage in dangerous activities, your application could be denied or referred to an underwriter.
How much coverage can you get?
When you apply for a simplified issue policy, your insurer has less information about you than it would get if you went through a full life insurance underwriting process that included a medical exam. That makes you riskier to insure from an insurer’s perspective. As a result, simplified issue policies generally have lower death benefits than traditional policies.
Though some insurers offer as much as $500,000 in coverage, a typical simplified issue term policy will offer coverage amounts ranging from $100,000 to $250,000. Customers older than 55 are frequently limited to $100,000.
Simplified issue permanent life insurance policies are typically designed for burial and other final expenses, so they offer lower death benefits. Many simplified issue whole life insurance policies have maximum death benefits between $25,000 and $50,000.
Simplified issue life insurance pros and cons
Advantages of simplified issue life insurance
Simplified issue life policies don’t require a medical exam or bloodwork.
If your application is approved, coverage can begin the same day.
You can typically buy more coverage than you’d get through a guaranteed issue policy.
Disadvantages of simplified issue life insurance
You may qualify for lower premiums and more coverage through a traditional policy.
Your application may be rejected if you have preexisting health conditions, a dangerous job, or high-risk hobbies.
Is simplified issue life insurance worth it?
A simplified issue policy may be worth it if you’re in relatively good health and you need your policy to be in force right away. For example, if you’re a new parent seeking coverage, you may not want to wait several weeks for coverage to begin. Or if you’ve been ordered by a court to obtain life insurance as part of a child support agreement, you may need your policy to be in force immediately.
If you need immediate coverage, you may have the option of buying a temporary policy while you wait for a traditional life insurance application to be approved. But if you have dependents and you’re unwilling to deal with the time and medical exam required for most life insurance policies, buying simplified issue life insurance can be worth it to provide financial protection for your loved ones.
Alternatives to simplified issue life insurance
Simplified issue life insurance is worth exploring when you have an immediate life insurance need, but it’s not the only option. Here are some alternatives to consider.
Buy temporary life insurance to avoid a coverage gap. If you’re willing to undergo a medical exam but need coverage to begin immediately, you could purchase temporary life insurance for protection while your application is processed. The applications for temporary coverage and simplified issue life insurance are similar in that you’ll only need to complete a basic questionnaire. But once you obtain temporary life insurance, you’ll typically have around 90 days to complete a medical exam for your permanent policy. Insurers often limit your coverage to $1 million through a temporary policy.
Undergo full underwriting. Going through the standard underwriting process takes time, and the medical exam can be intimidating. But it could save you money on premiums, especially if you’re young and in good health.
Obtain group life insurance through your employer. If your employer offers group term life insurance as a benefit, you can usually obtain coverage at little to no cost, without a medical exam or answering health questions. The death benefit is usually capped at one or two times your salary. You may have the option to purchase additional coverage, although you might need to provide health information or undergo an exam. Most group policies won’t allow you to keep your coverage if you leave your job
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Frequently asked questions
What’s the difference between simplified issue and guaranteed issue life insurance?
A guaranteed issue policy is a type of life insurance that accepts anyone, with no medical exam or health information required. A simplified issue life policy offers a streamlined application process, but coverage isn’t guaranteed and you’ll need to answer questions about your medical history when you apply.
Can I get life insurance without a medical exam?
You can obtain both simplified issue life insurance and guaranteed issue life insurance with no exam. However, an exam may help you lower your premiums and qualify for more coverage if you’re young, healthy and don’t engage in risky activities.
Does simplified whole life insurance build cash value?
As with any whole life policy, simplified whole life insurance will build cash value. But because these policies are often intended specifically for final expenses, the cash value is minimal compared with traditional whole life policies.
As analysts scrutinize commercial real estate’s potential to destabilize the banking industry, the sector also faces a slowdown in loan purchases from one of its largest investors — life insurers.
Mortgage loans acquired by the life insurance industry plunged 59.9% to $14.86 billion in the first quarter compared to the same period a year earlier, according to new research published by S&P Global Market Intelligence. The amount was the smallest first-quarter number since 2014, while also dropping to its lowest mark since the COVID-impacted months of mid 2020.
Uninsured commercial mortgages, which typically make up the majority of loans acquired by life insurance companies, saw an even steeper falloff of 63.8% to $9.34 billion from $25.77 billion in the first quarter of 2022. The total share of commercial loans relative to overall quarterly acquisitions came out to 64.8% in dollar volume.
Meanwhile, uninsured residential securities saw their share grow to 29.1% of insurer purchases, marking noticeable diversification since 2020. The split that year between commercial and residential acquisitions was 77.2% to 11%.
“The changing landscape of general account asset managers may be as responsible for that trend as a desire to diversify,” according to Tim Zawacki, principal research analyst at S&P Global Market Intelligence.
The latest data comes as commercial real estate loans show hints of deterioration in recent performance, as federal officials also weigh in about the risk they may hold. Delinquencies in the first three months this year came in higher from the fourth quarter across all investor types, according to the Mortgage Bankers Association. Commercial loans held by life insurance companies 60 days or more past due had a delinquency rate of 0.21% up on both a quarterly and annual basis. But while elevated, they were still well below historic lows.
The office loan market, in particular, is the source of much of the current anxiety, largely fueled by growing numbers of vacancies resulting from resistance toward a return to in-person work. Delinquent office loans hit a five-year high in May, with more than 4% of loans packaged within securities more than 30 days past due, real estate data provider Trepp recently said.
Compared to a year earlier, life insurers have also significantly cut back on their acquisitions of office-property loans, with just $693.53 million worth purchased in the first quarter, representing an 81% annual decrease, S&P Global’s analysis found. The total added up to just a 7.4% share of all mortgages the industry acquired, well off 14.2% a year earlier and 33.5% in the first quarter of 2018.
Making up for some of that dropoff were investments in multifamily and industrial properties, which include distribution centers, data hubs and manufacturing plants. But the industry’s acquisitions in those assets also took a steep dive as well, with multifamily purchase volume falling on an annual basis by 65.8%, and industrial down 58%.
MetLife held the largest mortgage portfolio volume of all insurers with $60.24 billion at the end of the first quarter, well outpacing Northwestern Mutual and New York Life at $51.92 billion and $38.66 billion, respectively. None of the top 10 mortgage holders increased their acquisition numbers on a year-over-year basis, S&P Global said.
Still, while headwinds appear, insurers insist that the credit quality in their mortgage portfolios is strong, as many expressed confidence in recent earnings calls about how they would perform in a downturn thanks to underwriting standards and previous stress-test analysis.
“Life insurers are traditionally viewed as conservative lenders, focusing on commercial mortgages with relatively low loan-to-value ratios and high debt-service coverage ratios,” Zawacki said.
While first-quarter numbers showed some initial signs of stress from changes in mortgage-loan valuation, problems were limited to a few companies. Unrealized valuation decreases of $120.2 million were the highest in absolute terms in at least 15 years, but only two insurers were responsible for most of the loss.
Insurers will feel the effects of current commercial mortgage troubles, but more serious impact may turn out to be isolated, rather than becoming a wider industry crisis, S&P determined.
From assistance with daily activities to medical support, long-term care insurance is designed to provide financial protection when you face chronic illness, disability or cognitive impairment. However, pre-existing conditions, advanced age, health issues and disabilities can disqualify you from getting coverage. Here are the ins and outs of long-term care insurance, a list of health conditions that insurance companies deem uninsurable and alternative solutions to help you get the care you need on a modest budget. You may want to talk to a financial advisor to get specific advice for your situation.
What Is Long-Term Care Coverage?
Long-term care insurance provides coverage for the costs associated with long-term care services. Specifically, it helps individuals pay for assistance with activities of daily living (ADLs) or medical services needed due to a chronic illness, disability or cognitive impairment.
Long-term care services support various activities, such as bathing, dressing, eating, toileting and movement. It can also cover services nurses, therapists and home health aides provide. Some policies may even cover care in nursing homes, assisted living facilities or adult day care centers.
In addition, this insurance aims to help individuals protect their assets and savings from being depleted by the high costs of long-term care. These costs can be substantial and standard health insurance doesn’t cover them. Likewise, Medicare and Medicaid don’t cover these expenses except under specific circumstances and eligibility criteria.
When an individual has long-term care insurance, they pay regular premiums to the insurance company. If they require long-term care services in the future, the insurance policy can provide benefits to cover a portion of the costs up to the policy’s coverage limits. The specific benefits and coverage provided by long-term care insurance policies can vary, so reviewing and understanding the terms and conditions before purchasing a policy is essential.
It’s worth noting that long-term care insurance is generally more expensive and harder to obtain as you get older or have pre-existing health conditions. Therefore, it’s advisable to consider purchasing long-term care insurance earlier in life when premiums are more affordable and eligibility requirements are more flexible.
What Disqualifies You From Long-Term Care Insurance?
Insurance companies consider certain factors disqualifying or exclusionary when you apply for long-term care insurance. These factors can vary between providers, but here are common reasons that may result in disqualification from long-term care insurance:
Pre-existing conditions: Insurance companies often review an applicant’s medical history to assess their risk. For example, if you have certain pre-existing conditions, such as Alzheimer’s disease, Parkinson’s disease or certain forms of cancer, the insurer may decline or exclude coverage for those conditions.
Age: Some insurance companies have age restrictions and may not offer coverage to individuals beyond a certain age, typically around 80 or 85. The cost of premiums also tends to increase as you get older. Conversely, you can’t be younger than 18 when purchasing coverage.
Existing disabilities or impairments: If you already have a disability or impairment that requires long-term care, insurance companies may consider it a high-risk factor and decline coverage.
Cognitive impairments: Severe conditions like dementia may disqualify an individual from obtaining long-term care insurance. Insurers assess the risk associated with cognitive decline and may exclude coverage for related care needs.
Terminal illness: Individuals with a terminal illness may not be eligible for long-term care insurance, as the policy aims to cover long-term care needs rather than end-of-life care.
Recent hospitalizations or surgeries: Insurance companies may impose waiting periods or exclude coverage for pre-existing conditions if an applicant has recently been hospitalized or undergone a significant surgery.
Substance abuse or mental health disorders: Some insurers may decline coverage or exclude certain conditions related to substance abuse or specific mental health disorders.
Declining health: If an applicant’s health is already in decline, insurance companies may deny coverage or charge higher premiums to account for the increased risk.
Criminal history: If crimes appear on your personal record, insurance companies might refuse to provide coverage, particularly if you have any felonies in your past.
Remember, not all insurance providers have the same criteria and the availability of long-term care insurance and the specific conditions they cover can vary. Therefore, when considering long-term care insurance, it’s recommended to consult with multiple insurance companies, carefully review the policy terms and conditions and seek advice from an insurance professional or financial planner specializing in long-term care planning.
Examples of Uninsurable Health Conditions
Because each insurance company has underwriting guidelines and practices, the specific list of uninsurable conditions can vary between providers. That said, here are some health conditions that insurance providers typically perceive as high-risk:
AIDS/HIV
Alzheimer’s Disease, dementia and other forms of cognitive issues
Ankylosing spondylitis
Amyotrophic Lateral Sclerosis
Bipolar Disorder or other depression with the use of antipsychotic medications
In addition, if you require help with activities of daily living or live in a care facility, companies will likely consider your conditions uninsurable. Likewise, if you use a wheelchair, walker, cane, stairlift or hospital bed, you may be ineligible. Furthermore, oxygen therapy also disqualifies you from coverage in most situations, as do disability benefits, with the possible exception of military benefits.
Remember, this list is not exhaustive and the availability of coverage for these conditions can vary between insurance providers. Insurance companies may also consider factors such as the severity and stability of the condition, the age of the applicant and other individual circumstances when assessing insurability.
Long-Term Care Health Qualifications
Typically, individuals aged 65 and above are eligible for long-term care insurance, even if they have a notable health condition. Nonetheless, eligibility depends on specific criteria each insurance company sets. For instance, certain companies may mandate a specific level of net worth or income to qualify, while others focus on your medical conditions and history.
In other words, your eligibility for long-term care insurance rests with the insurance company. Therefore, it’s crucial to research the criteria of long-term insurance providers to identify the one that aligns with your circumstances.
How to Pay For Long-Term Care without Long-Term Care Coverage
When shopping around for long-term care coverage, you might have disqualifying health conditions or discover that the insurance premiums aren’t realistic for your budget. If so, you can pay for long-term care through other means, such as:
Self-Funding: If long-term care insurance is not feasible, you can adopt a simple approach of living on a reduced budget to save and invest more. It’s an excellent idea to set aside money regularly for investment purposes, whether through a 401(k), an IRA or a non-retirement investment account.
Group Plan Coverage: If your employer offers long-term care insurance as a benefit, you may be eligible for enrollment regardless of your health history. Taking advantage of such coverage is advisable if you have a chronic condition, as it may allow you to continue it even after leaving the employer.
Long-Term Care Annuity: Consider investing in a long-term care annuity, where you make a lump sum payment and receive a consistent, specified income for the rest of your life. Long-term care annuities often include provisions to assist with long-term care expenses.
Hybrid Life Insurance/Long-term Care Policy: Some life insurance policies come with a long-term care rider, making it easier for individuals with chronic conditions to qualify for coverage. These policies combine life insurance benefits with the option for long-term care coverage.
Short-Term Care Policy: Instead of a long-term care policy that provides coverage for multiple years, you can choose among short-term care policies offering coverage for a year or less. While the benefits may not be as extensive as traditional long-term care insurance, having some coverage is better than none.
Medicaid: Individuals with limited income and countable assets below certain thresholds may be eligible for long-term care services covered by Medicaid, a government program.
Life Insurance Policy Settlement: If you currently hold a life insurance policy, pursuing a long-term care life settlement is possible. To do so, you can sell the policy and use the proceeds to cover long-term care expenses.
The Bottom Line
Long-term care insurance covers the costs associated with long-term care services, assisting individuals with activities of daily living (ADLs) and medical services related to chronic illness, disability or cognitive impairment. It aims to protect assets and savings from the high expenses of long-term care, which are often not covered by standard health insurance, Medicare or Medicaid. Therefore, researching and evaluating options is essential to find the most suitable approach for individual circumstances.
Tips for Qualifying for Long-term Care Insurance
Long-term care looks different for everyone because of the endless combinations of health conditions and financial circumstances. As a result, there’s no simple answer for how to navigate long-term care and financial management in retirement. Fortunately, an experienced financial advisor can help establish a sustainable plan for your golden years. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
As with many aspects of retirement, timing is crucial for long-term care insurance. If you’re unsure how your timeline matches your long-term care situation, here’s how to know when to apply for long-term care insurance.
Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
J.D. Power Score in 2022 U.S. Individual Life Insurance Study
AM Best Financial Strength Rating
Guardian
Life insurance coverage without a medical exam
787/1,000
A++ (Superior)
Mass Mutual
Whole life insurance
780/1,000
A++ (Superior)
Mutual of Omaha
Digital accessibility
801/1,000
A+ (Superior)
Nationwide
Customer satisfaction
791/1,000
A+ (Superior)
Northwestern Mutual
Universal life insurance
794/1,000
A++ (Superior)
Prudential
Policy personalization
773/1,000
A+ (Superior)
State Farm
Term life insurance
839/1,000
A++ (Superior)
How Bankrate picked the best life insurance companies for 2023
To find the best life insurance companies of 2023, Bankrate’s editorial team started by researching the largest life insurance carriers on the market. We also analyzed life insurance company ratings, including customer satisfaction scores and financial strength ratings from trusted, unbiased sources, including J.D. Power and AM Best. Next, we looked at whether or not each insurer offers a mobile app, online portal, 24/7 customer service and local agents to determine each company’s accessibility. We then factored in each company’s coverage capacity (the maximum dollar amount of each company’s death benefit), the number of riders for optional coverage and the availability of a no-medical exam underwriting option. More information about each carrier is available below to help you learn about their benefits and drawbacks.
You may notice that we don’t include average rates in our analysis. That’s because rates vary widely based on each policyholder’s age and health metrics, as well as the type of policy they choose, their death benefit level and any riders they add on. Life insurance companies don’t reveal average rates, since that information reflects the general health of its policyholders and could put privacy at risk. Life insurance rates are incredibly personal, so average rates aren’t a helpful metric when choosing a company. Additionally, rates don’t vary as much between life insurance companies as they do between auto or home insurance companies. Generally, insurance experts recommend that you choose a life insurance company based on the specific product you need, rather than the rate.
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Choosing the best life insurance policy is not a decision to take lightly. The insurance company’s history, as well as its reputation for customer service, financial stability and death benefit payouts are just a few of the things that can impact both your experience and policy value. We assessed NAIC ratings based on market share, financial stability ratings from sources like AM Best and customer satisfaction scores from J.D. Power. We also examined the number of endorsements and riders available, general accessibility, coverage capacity and whether medical exams were required as part of the underwriting process in order to make our picks.
Compare the best life insurance companies
Shopping for life insurance can be intimidating but Bankrate is here to make the process easier. When studying the largest life insurance carriers, there are some metrics that you can rely on to help effectively compare your options. Does one company offer a wide range of life insurance policy types, as well as riders and endorsements to personalize your policy, compared to another? What does the qualification process look like, and what might your estimated life insurance premium be?
From there, you can also compare companies’ financial strength ratings and customer service scores from trusted third-party agencies, such as AM Best and J.D. Power, for an unbiased view of which providers may excel in these areas and give you the best experience.
Guardian
Best for: Life insurance coverage without a medical exam
The Guardian Life Insurance Company of America ranks well in customer satisfaction and financial strength and offers the most term life insurance riders on our list. According to the National Association of Insurance Commissioners (NAIC), the company also has fewer than baseline policyholder complaints and offers multiple no-medical exam policy options.
Guardian provides easy policy management through its network of more than 3,000 financial representatives across the nation and online account management. Guardian carries an A++ (Superior) financial strength rating from A.M. Best and offers multiple coverage options depending on your life stage, goals, needs and budget.
Learn more: Guardian Life Insurance review
PROS
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Dividends available on some policies
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Easy online management
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Policies available for HIV-positive applicants
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Multiple no-medical exam policy options
CONS
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Must purchase coverage through an agent
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Rider details limited online
MassMutual
Best for: Whole life insurance
MassMutual won a Bankrate Award in 2022 and 2023 for best whole life insurance thanks to its A++ (Superior) financial strength rating from AM Best and for offering 13 whole life insurance riders, the most of any company we analyzed.
MassMutual, also known as Massachusetts Mutual Life Insurance Co., is a U.S. life insurance company owned by its policyholders, allowing select policyholders to earn dividends when the company does well. MassMutual offers an online application process for term life policies. Coverage takes effect immediately upon application approval, and applicants must usually complete medical exams for all term and universal life policies.
Learn more: MassMutual Life Insurance review
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Free coverage for qualifying low-income families
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Convenient mobile app
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Numerous riders
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Superior financial strength
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High coverage capacity (the maximum dollar amount of a policy’s death benefit)
CONS
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Limited online quotes
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Medical exams required for term and universal life policies
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No final expense policies
Mutual of Omaha
Best for: Digital accessibility
Mutual of Omaha ranked just behind the overall winners of Bankrate’s best life insurance study. The company ranks well above average in J.D. Power’s customer satisfaction survey and earned a financial strength rating of A+ (Superior) from AM Best. Mutual of Omaha offers no-medical exam life insurance options, and its digital features could make managing your life insurance policy easy.
Some people may be looking for the best online life insurance experience. In terms of accessibility, Mutual of Omaha offers a robust digital app, an online portal, local insurance agents and a 24/7 phone line for accepting your payments.
Learn more: Mutual of Omaha Life Insurance review
PROS
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Easy online quote process
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Offers digital money management app
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High J.D. Power customer satisfaction score
CONS
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Does not provide dividends
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Not all life insurance can be quoted online
Nationwide
Best for: Customer satisfaction
Nationwide offers a user-friendly mobile app, streamlined online portal and a network of independent agents across the U.S. Combine those features with an above-average J.D. Power customer satisfaction rating, and Nationwide could be a great choice for customer satisfaction.
The multi-line insurer offers seven riders for universal life, the second-highest number of riders of any company on our list. Nationwide also received an A+ (Superior) financial strength rating from AM Best, making it possibly one of the best life insurance companies in the marketplace in terms of third-party ratings.
Learn more: Nationwide Insurance review
PROS
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No-medical exam options available for universal, whole and term life insurance programs, depending on eligibility
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Above-average J.D. Power customer service score
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Plentiful rider options
CONS
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Limited online quotes
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Policy acceptance not guaranteed
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No 24/7 help line
Northwestern Mutual
Best for: Customer service
Northwestern Mutual won the 2023 Bankrate Award for best universal life insurance company due to its high financial strength rating, highly-rated customer satisfaction and available financial planning services. Northwestern Mutual sells coverage through agents, which could be a good fit for those who prefer face-to-face interactions over a digital purchase process.
Earning an A++ (Superior) financial strength rating from AM Best, Northwestern Mutual shows a strong history of being able to pay claims. As a mutual company, it is owned by its policyholders. Northwestern Mutual offers a variety of term, whole and universal life insurance policies. Because universal life coverage is flexible, you may be contacting your agent more often. Northwestern Mutual ranks highly in Bankrate’s internal study of accessibility for providing a mobile app, online portal, local agents and a 24/7 customer service phone line that accepts premium payments.
Learn more: Northwestern Mutual Insurance review
PROS
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Dividends available on whole life insurance policies
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Flexible policy options
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Wide range of riders
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Easy-to-use online portal and mobile app
CONS
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Must buy coverage through an agent
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Limited information available online
Prudential
Best for: Policy personalization
Prudential is the third-largest U.S. life insurer based on market share rankings from the Insurance Information Institute (Triple-I). In our study, Prudential Financial ranked just behind our overall best life insurance company winners in customer satisfaction and accessibility. It offers plentiful rider options, easy-to-use online tools and live agent support.
The company has nine universal life insurance riders — more than any other carrier on our list. It offers a variety of term life and universal life insurance policies, giving customers a greater level of flexibility than some of its competitors. However, keep in mind that Prudential does not offer whole life insurance or no-medical exam policy options.
Learn more: Prudential Life Insurance review
PROS
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Live agent support available
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Online tools
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Plentiful rider options
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Variety of term and universal life policies
CONS
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Medical history required for quotes
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Limited online quotes
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Selective policy options
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Below-average J.D. Power customer satisfaction score
State Farm
Best for: Term life insurance
State Farm was another two-time Bankrate Award winner, scoring the prize for best term life insurance in 2022 and 2023, thanks to its top-notch customer service and accessibility tools. As one of the top life insurance companies, State Farm also received the highest customer satisfaction score from J.D. Power.
State Farm offers accessibility tools including a 24/7 customer helpline, easy-to-use mobile app, online portal and more than 19,000 exclusive local agents across the U.S. With an A++ (Superior) rating from AM Best, State Farm has a history of financial stability. The carrier offers a variety of term life insurance options as well as whole, universal and variable universal options.
While there are a few different types of life insurance policies available, they fit into one of two umbrellas: term life and permanent life. Term life insurance is almost always cheaper than permanent life, as it provides coverage for a pre-established amount of time and lacks a cash value component. However, term life policies can be fitting for a variety of circumstances if the death benefit is only needed for a set number of years. Knowing how term policies work can empower you to make an informed decision when shopping for new coverage. Bankrate’s insurance editorial team breaks down term life insurance to help you better understand if this policy type is right for you.
Key takeaways
Term life insurance only stays in effect for a predetermined number of years —usually between 10 and 30 years — unlike permanent life policies.
Term policies are around three times cheaper than permanent life insurance, on average, because the chance of a payout on behalf of the policyholder is less likely.
99 percent of all term policies never pay a death benefit, because most term policyholders stop paying their premium, causing their policy to lapse.
If you want to see a return on payments towards a term life insurance policy, you may want to look into conversion riders or return-of-premium riders.
What is term life insurance?
Term life insurance is a type of life insurance policy that lasts for a predetermined number of years rather than your entire life. When purchasing a term life policy, you’ll choose a policy term, most commonly between 10 and 30 years.
To help understand how term life insurance works, imagine you purchase a 10-year term life insurance policy. During that decade, you would pay your monthly or annual premium on time. If you were to pass away within that 10-year period, your beneficiaries would receive the policy’s death benefit.
If the insured does not pass away within the policy term and the coverage expires, the policy would end and the beneficiaries would not receive a death benefit when the insured passes away. However, there are exceptions to this scenario. Many of the best life insurance companies offer specialized riders, like conversion and return-of-premium riders, that tweak the way term life insurance policies work. If you are purchasing term life insurance, you may want to speak with your agent about what riders are available for your specific policy.
Typically cheaper than permanent life insurance
No cash value component or investment potential to build wealth
Conversion and return-of-premium riders may add flexibility and peace of mind
Only covers a specified time period
Gives families the ability to cover significant financial liabilities that will eventually expire after a set period of time, such as mortgages and tuition
Sunk cost if you outlive the policy
Advantages of term life insurance policies
When choosing life insurance, it’s important to know how term and whole life insurance policies compare. Term life insurance has a couple of key advantages that make it an attractive option for those who need a larger death benefit for a specific period of time. It is typically the cheapest type of life insurance, especially for younger people or new parents. The larger death benefit at a reasonable price can provide for children dependents if something happens to the parent(s) earlier than anticipated.
Many financial planners encourage people who buy term life insurance to invest the money saved from not purchasing more expensive permanent life insurance. For policies with level premiums, the cost will not increase with age for the policy’s life as it does with some other life insurance options.
Learn more: Compare life insurance quotes
Disadvantages of term life insurance policies
Term life insurance does have a few limitations to keep in mind. For example, term life insurance policies pay out a death benefit when the insured passes away, but these policies do not include a cash value account. Whole life insurance policies, on the other hand, typically include a cash value account that may accumulate limited interest and capped returns. Some permanent life insurance policyholders use their cash value accounts to build wealth, but that option does not exist with a term life policy.
Another potential downside to having a term life insurance policy is that it only remains in effect for a certain period of time. Because policyholders can outlive their policies, there’s a chance that the death benefit will never be paid out. In fact, a study done by Penn State University indicates that 99 percent of all term policies never pay out a death benefit. However, that’s because most term policyholders don’t pay their premiums and let their policies lapse, not because they outlive the policy term, according to Entrepreneur.
Learn more: Best term life insurance companies
Types of term life insurance
There are several different term life insurance options, and some offer more guarantees than others. Usually, the more guarantees the policy offers, the more expensive the policy is. Here is a breakdown of the major types of term life insurance policies:
Level term insurance: Both the premiums and the death benefit remain constant over the policy’s life with this form of term coverage. Level term insurance usually lasts for anywhere from 10 to 30 years.
Decreasing term insurance: This type of term insurance, usually used to cover a shrinking debt such as a mortgage, is typically less expensive because the death benefit slowly decreases over time.
Guaranteed renewable term insurance: This type of term coverage allows the policyholder to renew the policy at the end of the term without having to undergo a medical exam or prove insurability again. It is generally more expensive overall, and it is important to note that the policy premiums will still increase with each successive term. A yearly renewable term is a form of guaranteed renewable term coverage.
Convertible term insurance: If you purchase a conversion rider and outlive your policy term, your coverage would turn into a permanent life insurance policy. Typically, you will not have to undergo another medical exam during policy conversion. Keep in mind that your premium or death benefit amount will change based on your age at the time of conversion. For example, if you wish to continue paying around the same premium, your death benefit would decrease, whereas you’d pay more to maintain around the same death benefit.
Return-of-premium term insurance: Some policyholders may be worried about signing up for a term policy, outliving their term and “wasting” the premiums they paid over the course of the policy term. This specialized rider provides a partial or full refund if you outlive the policy term. However, the rider will cost you extra during the policy term.
Riders for term life insurance
A standard term life insurance policy may not cover certain events such as critical illnesses, financial protection for your loved ones after you pass, and more. A rider, also referred to as an endorsement, is an optional type of life insurance coverage that can be added to your existing policy. It can be beneficial to add a rider to cover some of the gaps in coverage in a term life insurance policy. Here are three riders that are available for term life insurance:
Child term rider: This is only available for term life insurance policies. A child term rider provides coverage if your child passes away before a certain age and would pay out a death benefit. Additionally, this rider enables the term policy to be converted to a permanent policy without needing a medical exam.
Return of premium rider: For an additional fee, this rider ensures you receive back the money you paid into the policy if you don’t pass within the policy’s term. If the policyholder passes away before then, the money would be paid to the beneficiaries listed as normal.
Waiver of premium rider: If you become critically ill, injured or disabled and cannot go to work, a waiver of premium enables you to pause your monthly premium until you’re able to go back to work. However, qualifying scenarios are determined by the particular insurer. Additionally, with this rider you are typically only covered up to a certain age — usually your retirement age.
How much does term life insurance cost?
Term life insurance premiums are calculated based on the age and health of applicants. Because of this, pricing for a term life insurance policy varies but is typically significantly cheaper for younger applicants. Keep in mind that age and health are the main determinants of your premium, though you may still see some variance if you get quotes from multiple life insurers.
Comparing life insurance companies may be most helpful when you focus on what type of policy riders are available, how positive the customer satisfaction may be or what the insurer’s financial strength ratings are compared to other insurers.
Learn more: Affordable life insurance companies
Will I get my money back at the end of my term?
Unless you purchase a return-of-premium term life insurance policy, you will not get any money back at the end of the term. Paying premiums without receiving a death benefit is one of the potential disadvantages of purchasing term life insurance. A return-of-premium rider would increase the cost of your term life insurance, but would allow you to recoup a portion or all of your paid premiums. If you want to receive money back in the event that you outlive your policy term, you may want to discuss this option with your life insurance agent.
How much term life insurance do I need?
Deciding how much term life insurance you need hinges on your financial goals and specific situation. For instance, a parent of a young child may want to purchase a life insurance policy with a 15-year term. A term of this length could make the most sense as it could ensure that their child will be financially secure if the parent passes away while the policy is in place.
On the other hand, a childless couple with 10 years left on their mortgage may only want a term life insurance policy to be active while they are still paying off their home.
Some other factors to consider when determining your life insurance coverage needs include:
What is your yearly income and what are your expenses? How much room do you have in your budget for life insurance?
Are you the sole breadwinner? If not, does your spouse or partner make enough to cover your family’s current and future expenses if you aren’t there?
How many children do you have, and what are their ages? Do you plan to cover their higher education costs?
Are you a caretaker for any disabled family members?
Do you have a mortgage or other debts? If so, how many years will it take to be debt free?
How much financial help would your spouse need to keep your home afloat if you passed away?
It’s essential to consider your coverage needs to keep your life insurance premium within budget. If you carry too much coverage, you could find it challenging to keep up with your life insurance bill, putting yourself at risk of policy cancellation. If you don’t have enough coverage, your beneficiaries may struggle financially after your death. A life insurance calculator can help guide you on your life insurance shopping journey, as can a consultation with a certified financial planner.
Frequently asked questions
At the end of a term life insurance policy’s term, most plans will expire; however, policyholders may have the option to either renew the policy for a predetermined term of their choosing or convert the policy to a permanent plan, if they have elected these options at the onset of their policy. While letting the plan expire in most term policies means losing the money paid into premiums, some providers offer “return-of-premium” options that allow people to pay higher premiums in exchange for the option to have some or all premium payments returned if they outlive their term.
While it is possible to take out a life insurance policy on someone else, there are some stipulations. For instance, there must be insurable interest between the person purchasing the policy and the person being insured, such as business partners, spouses, parents or children. The person purchasing the policy must prove that the death of the insured person would have an adverse financial impact on them. Additionally, the insured person would also need to provide their consent, as you cannot take out a policy on someone without their knowledge or agreement.
Choosing a life insurance beneficiary is a personal choice. Many choose spouses, children, parents or a trust for the benefit of a family member to be their life insurance beneficiaries, but no rules dictate that these are your only options. Your life insurance beneficiary doesn’t have to be a person at all — you can choose to list a church or charity as your beneficiary if you wish. One of the most important things when selecting a life insurance beneficiary is remembering to do it. Forgetting to name a life insurance beneficiary can cause financial hardship for the person (or people) you thought would be collecting your death benefit.
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Do you remember what it’s like being a kid with no financial responsibilities? Neither do I. It seems like we have been adulting forever. If life insurance isn’t quintessential adulthood, I don’t know what is. As you are reading and researching life insurance, one of the biggest questions you ask yourself is “Do I even need life insurance?”
Ask yourself this question: Does someone rely on me financially? If the answer is yes, then you likely need life insurance. Let’s discuss a few different types of people and their need for life insurance.
Single? You probably don’t need it.
If you are single and have no children, you probably don’t need life insurance. However, if you’re an ultra-planner or want to have a family sooner rather than later, locking in those low rates while you’re young and healthy can be a wise move.
Here are a few situations in which buying life insurance would be recommended even if you’re single:
Co-signed loans
Maybe your grandparents are co-signers on your private student loans or your parents co-signed on your mortgage. If you die before the balance is paid, the creditors can go after your co-signers. Life insurance can pay for these debts.
Caring for relatives
If you are caring for siblings or aging relatives you should consider life insurance to ensure that your loved ones are still provided for even if you are no longer around.
Have dependent children? You definitely need it.
Those with children have the greatest need for life insurance. Children rely on you for food, clothing, shelter, medicine, and everything else. If you die, life insurance can continue to fund these things, and it can also pay for hopes and dreams such as college tuition or a wedding.
Let’s take a closer look at specific parental situations:
Dual income families
If your household has two incomes contributing to standard of living, the sudden loss of a parent can cause financial upheaval if there is no life insurance to replace the lost income. One parent is now responsible to provide what two incomes previously did. For example, the proceeds from a life insurance policy can pay off the mortgage ensuring the children do not have to be uprooted from their home or school district.
Single parents
Let’s face it, the loss of a single parent to a child would be devastating. When married couples purchase life insurance, they often plan with the possibility that one spouse will remain to care for the children. Single parents do not have this luxury and absolutely need life insurance.
Stay-at-home parents
When you think of life insurance, you may only think a breadwinner needs coverage and not a stay-at-home parent – this could not be further from the truth. Imagine everything a stay-at-home parent does: babysits, cleans, cooks, transports, grocery shops… the list goes on. According to Salary.com, a stay-at-home mom is worth approximately $112,962. If the stay-at-home parent were to die unexpectedly, life insurance can pay for someone to help with these tasks.
Married? You most likely need it.
You don’t need to have children to rely on your significant other’s income. You’re building a life together and doing so requires money. You are likely both contributing to rent or a mortgage, car payments, utilities, and credit card bills. What happens if one of you were to die prematurely? The death benefit from a term life insurance policy can help pay for those expenses and cover the cost of a funeral.
It’s not uncommon today for couples to be in a committed relationship but postpone marriage. While it’s a little easier to own life insurance on your significant other if you are married, non-married couples can still purchase life insurance on one another as long as they can prove insurable interest.
Insurable interest is when a person can expect to suffer financial loss upon the death of another specific person. Having both names on a mortgage loan, both named on a lease, or owning a business together are just a few examples of how you can prove insurable interest.
The two types of life insurance
There are two main types of life insurance: term life insurance and permanent life insurance.
Term insurance:
Basic, inexpensive life insurance
Temporary – lasts a certain length of time (typically 10, 20, or 30 years)
Ideal for most people
Permanent insurance:
Lasts a lifetime
Accumulates cash value
Much more costly than term insurance
Not necessary for most people
For most individuals, term life insurance is suitable coverage. It is designed to last only during the years in which you have the greatest need for it. Permanent life insurance can be beneficial for more complicated situations such as managing wealth for large estates.
The key benefits
Buying life insurance means you hand over some of your hard earned dollars to an insurance company – so what do you get in return?
Your life insurance policy will provide significant funds to your loved ones when they need it most, allowing them to grieve without the added financial stress.
The death benefit is typically considerably greater than the premiums you paid.
The proceeds are generally safe from creditors. Even if you die with debt, creditors cannot go after the life insurance proceeds paid.
Life insurance proceeds are typically not taxed by the federal government.
Peace of mind in knowing your loved ones will be financially protected if you are taken from them too soon.
Natasha Cornelius is the content manager and editor for Quotacy. She has worked in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. A long-time Mint user, Natasha lives in Bozeman, Montana where she loves to garden, DIY anything she can, and explore beautiful Big Sky country. Connect with her on LinkedIn.
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How Do I Fit Life Insurance into My Budget?
Save more, spend smarter, and make your money go further
Budgeting for life insurance might not be as exciting as budgeting for a new car or a fun trip, but it is much easier. Many people think about life insurance, but then decide to put it on the back burner because they think it’s expensive. Well guess what? Life insurance is actually very affordable.
Life insurance is really about protecting your loved ones from financial disaster if you should pass away. Think of it as income replacement.
Plan for what you need
Most people overestimate the cost of life insurance by 3-4 times. Life insurance is less expensive than you think. On average, you can get a $500,000 policy for $50 per month! We recommend getting coverage that is at least 5-10 times your income, but most importantly you should buy what you can comfortably afford. Having $100,000 in coverage is a million times better than having nothing at all.
Here’s what you need to cover:
Personal debt (car, student loans, credit cards)
Mortgage
Funeral expenses
Monthly income your family will need (future college tuition for children, groceries, monthly bills)
How to save money on life insurance
There is no such thing as a coupon for discounts on life insurance, but there are other ways you can save money.
Buy term. Term life insurance is the most affordable coverage you can own. Permanent insurance can cost 10 times more than term life insurance.
Pay annually. Insurance companies add fees for the extra administrative work needed to provide you that convenience of paying monthly or quarterly. Paying annually typically saves you around 5%.
Compare quotes. Life insurance pricing isn’t the same across the board with insurance companies. Different carriers evaluate your application on their specific guidelines, so you may save money by choosing a company that is more lenient toward your health situation. When you compare quotes using a tool like Quotacy, you are provided with competitive prices from all the top life insurance carriers.
Take another look. You may be overpaying especially if you purchased life insurance directly through an agent that only represents one insurance company. Chances are you may be able to get a lower rate just by comparison shopping different companies.
Unbundle your coverage. Bundling your life insurance with home and auto insurance is typically more expensive.
Put the cost of life insurance into perspective
We insure our health, cars, home, valuables, and even our phones, but most of us don’t realize that life insurance is cheaper to insure than most of these. In life we face financial challenges. We budget for daycare, student loans, phone bills, car payments and much more. Life insurance may not feel like a necessity when we are on a tight budget, but when you realize that you can get your family covered for pennies on the dollar, it’s easy to make that decision. If you feel the financial struggle now, what happens to your family if you die? Make sure your family is protected.
Fitting life insurance into a budget
Let’s look at three easy changes that you can make to fit life insurance into your budget. I’ve even made them myself!
1: Practice BYO (Bring Your Own)
Do you go through the Starbucks drive-thru or out to lunch on a daily basis? What about those happy hours and brunching on the weekend? I get it. It may take baby steps to start making your own coffee, packing your own lunch, and cutting back on eating out in general. But you’ll be surprised at how quickly the savings adds up.
My girlfriends and I alternate between throwing our own happy hours or brunches on the weekends. There’s no pressure to get all dolled up, and we make it easy by having everyone pitch in and bring their favorite drink or dish. Sure, I still go out and have fun, I just do it a little less often.
2: Conduct a subscription audit
These days with all the apps we have our fingertips and that fine line between need and want, it’s easy to let the number of subscriptions we have get out of hand. So many of these subscriptions are auto withdrawn, so when you look at your bank account it’s hard to decipher what you are even paying for anymore. Chances are you don’t need to pay for Hulu, cable, and Netflix, or Pandora, Spotify, and iTunes Radio. Give up a few and your bank account will thank you.
I’m the queen of subscriptions. But after my budget boyfriend became my budget husband, I was encouraged to give up a few subscriptions in order to save for our future. I thought $10 per month was no big deal, but when I added everything up, it became a real chunk of change. I encourage you to go through your subscriptions and decide what you really need.
3: Get creative with date nights
Going out for a date night gets expensive. Even if you just go out for dinner and a movie, that night adds up quickly. A dinner for two can quickly reach $50 or more, especially when you add in drinks. Have you been to a movie lately? Evening tickets are averaging $12-$14 each! And of course you want that delicious, buttery popcorn to go along with that show. It’s easy to spend $100 for a simple night out.
I’m a lover of date nights, but when my husband and I made it a weekly thing, it became a large monthly expense. While we enjoy a dinner and a movie, sometimes we make it a daytime activity. A lunch and a matinee can cost almost half the price of an evening out. Or, we choose a movie on Netflix and make a dinner at home.
We also decided to spice things up by finding activities we both enjoy and took up tennis lessons. Now we love taking our dates to the tennis court and loser has to make dinner at home. Fortunately my game is better than his, so I rarely have to cook. Not only do we save money by not going out, we also get a good sweat session in.
How to shop around for life insurance coverage
Admittedly, you’ll be shopping for the lowest price. Make sure the prices you see are from well-known brands with high financial strength ratings (A rated or better). These companies have been around a century or more and will be here for a long time to come.
Let’s say you’re looking for a $500,000, 20 year term policy. To stay competitive, insurance companies all have around the same price for the same policy, maybe just within a few cents of each other, so at first look they all appear to be about the same. Starting prices are based on your gender, your age, what state you live in, and whether or not you smoke cigarettes.
From there, pricing starts to change based on specific niches that insurance carriers have created for certain medical conditions and lifestyle habits. For instance, if you enjoy an occasional cigar during your monthly golf game, many carriers will consider you to be a smoker at a higher price, while a few companies see that as less of a big deal and will classify you a non-smoker at lower prices.
Here’s another example. Even if you are the epitome of health, but one of your parents wasn’t, prices can be higher because of the genetic risk they passed onto you. Let’s say your father died of cancer before we was 50. Your low rate won’t be affected with one or two carriers, but with all the rest your price will be higher.
A good place to start your shopping is at Quotacy. When you use Quotacy’s life insurance quoting tool you’ll see how easy it is to find and compare prices between the top carriers. You’ll be able to find the right price for you.
Jeanna Simonson is a writer and the Ambassador of Buzz at Quotacy. She has been researching and writing educational articles on the importance of life insurance since 2015. When not writing for Quotacy, you can find her scoping out the newest fitness and beauty trends for her own personal blog, traveling and spending time with her husband and fur babies. Connect with her on LinkedIn.
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Save more, spend smarter, and make your money go further
Understanding your policy’s death benefit.
Q: How long does it take my beneficiaries to get my life insurance death benefit?
Once the death benefit claim form and a copy of the death certificate have been received by the carrier, beneficiaries typically receive the death benefit check in two weeks.
However, if the insured dies within the contest-ability period (which is typically two years) the death benefit may take longer because the life insurance company has the option to investigate the claim if they choose do to so.
Q: How do I know my beneficiaries will get paid the death benefit?
Life insurance companies are not in the business to rip people off. As long as your policy is inforce at the time of your death (in other words, the premiums were paid up-to-date) your beneficiaries will receive the death benefit payout. There are only a few exceptions to this, which we discuss in detail below.
Q: Are there any situations in which my life insurance policy won’t pay out?
There are three instances in which a life insurance company can choose to deny or reduce a term life insurance policy’s death benefit.
One: Contest-ability Period
Life insurance policies include what is called an Incontestability Clause. This clause states that the life insurance company has a specific period of time (typically two years) to dispute the validity of the insured’s statements made on an application. So, if you die within the contest-ability period, the life insurance company has the right to investigate the details of your medical history to ensure you did not misrepresent yourself on the application.
For example, stating that you did not smoke cigarettes when, in fact, you did up until the day you died. In a situation like this, insurance companies have the right to withhold some of the death benefit from your beneficiaries or even deny the claim altogether.
Two: Suicide Clause
Another situation in which the life insurance company has the right to deny a death benefit is if the insured commits suicide within a certain period of time, again typically within two years. In this situation, however, the life insurance company will return all premiums that have been paid to date to the family.
Three: Homicide
The last situation in which an insurance company may not pay a death benefit is if the insured was murdered. If the insured was murdered, the life insurance company will typically call the police department involved and inquire as to whether or not the beneficiary of the policy is a suspect.
If the beneficiary is a suspect, the life insurance company will hold payment until the charges are dropped or the beneficiary is deemed not guilty of the crime.
Q: Will my term life insurance death benefit payout be taxed?
Term life insurance is the least complicated type of life insurance and in most cases your beneficiaries will not have to pay federal or state income taxes on the death benefit they receive. Since the policy premiums are paid using after-tax dollars, Uncle Sam already got his cut.
There are two main exceptions to this rule:
Estate taxes
Gift taxes
If you own your own policy, the death benefit proceeds become part of your taxable estate. If your estate exceeds the exclusion amount, which is over $5 million dollars, it can get taxed. For most people, this isn’t an issue.
The second exception is what is known as “The Goodman Triangle.” If the policy owner, insured, and beneficiary are three different people, the death benefit could count as a taxable gift to the beneficiary.
Q: How can I be sure my policy’s life insurance carrier will still be around when I die?
All major life insurance companies have financial strength ratings. There are multiple agencies each with their own rating scales and standards that assess the long-term financial stability of these insurance companies. These ratings typically follow the school-like A through F scale. The higher the rating, the more stable the company is and the more likely the company will be able to pay future claims.
When you are looking to purchase life insurance, whatever means you are using to buy it through should tell you the insurance company’s rating. Any company with an A rating or better is considered financially stable and you should not worry about any future claims not being paid out.
Natasha Cornelius is the content manager and editor for Quotacy. She has worked in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. A long-time Mint user, Natasha lives in Bozeman, Montana where she loves to garden, DIY anything she can, and explore beautiful Big Sky country. Connect with her on LinkedIn.
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Part 2 of 3: Life Insurance Buyers’ Common Q&As
