Last updated June 2021
Life Insurance for Less:
Shop Around to Save Thousands of Dollars
Nobody wants to spend hours shopping for something that gives a benefit only after their demise. But when it comes to buying life insurance, you should. Just like when they collected prices for auto and home insurance, our undercover shoppers found huge company-to-company differences for identical term life policies sold by major providers.
For example, our editor, a 48-year-old male healthy enough to qualify for the lowest rates, spent three hours requesting pricing for a $500,000, 20-year term life policy from a local independent agent, large insurers, and comparison websites. (The rates he collected are reported in the table at end of this article.) The annual premiums he was quoted ranged from $709 to $1,896. Over a 20-year policy, those cost differences would total more than $23,000.
You should buy insurance to cover your family from potentially financially catastrophic risks—house fires, damaging weather, auto accidents, liability lawsuits, and medical expenses. If your death would create a major financial difficulty for your family due to lost wages, debts, or increased childcare expenses, you should also purchase life insurance.
We run through the options, tell you how we found the best rates, and advise on which coverage options are and aren’t worth the money.
Term Life vs. Permanent Life Policies
There are two main types of coverage: Term life and permanent life; the latter in its various forms is also known as cash value life, whole life, and universal life. Most of our advice focuses on shopping for term life policies, which are more affordable and more popular.
With a term life plan, when you sign up you decide how long you want the coverage and how much money the policy will pay out if you die within that timeframe. If you buy a $250,000, 20-year plan and die within those 20 years, your heirs collect $250,000; if you are still alive after 20 years, then the company gets to keep all the premiums you paid and there’s no payout.
Permanent life policies don’t expire after a set timeframe. You agree to pay premiums, often for the rest of your life, and the insurance company agrees to pay your heirs the death benefit whenever you die. With most plans, you can surrender your policy while you’re still alive and collect a calculated cash-value payout that accumulates based on how much you’ve paid and for how long.
The problem with whole-life plans is that they cost a lot more than term. For example, our 48-year-old editor can buy a $500,000, 20-year term life policy for about $700 per year but he’d shell out $5,000 annually for a similar-value permanent life policy with a similar death benefit.
Permanent life plans that contain cash value options are structured more like investments than insurance policies, but they offer negative rates of return if cashed in early. That’s because they charge expensive early-surrender fees to cover the costs of big commissions they pay to selling agents. If you surrender a cash-value policy in its first two to five years, you’ll typically lose all or nearly all of the money you paid in. You shouldn’t expect to do much better than break even until 15 years or so; respectable returns finally begin to emerge after 20 years. Yes, your heirs get the death benefit if you die during that period, but it’s wiser to spend far less for a term life plan and invest your savings elsewhere.
If you really want a permanent life policy, get help assessing the best one among those you’re considering. James Hunt (james[email protected]; 603-224-2805), an advocate with the nonprofit Consumer Federation of America and a retired life insurance actuary and former insurance commissioner for Vermont, runs a service that calculates the true rates of investment returns. Fees start at $150 for the first illustration plus $100 for each additional illustration you want evaluated for comparison purposes.
How Much to Buy? When to Buy It?
Get a term life policy that will pay out enough money to replace your income and prevent your family from suffering financial hardship due to debt, loss of any employer-subsidized health insurance, and/or increased childcare expenses. Some people also add enough to cover paying off mortgages and putting their children through college.
An easy rule of thumb is to cover each adult in the family for an amount equal to their annual before-tax income times 10 to 20 (depending on debt), plus $100,000 per child to help cover college. A better approach is to consider for how many years your family needs to continue to receive income from deceased adults and then multiply their salaries by the timeframe, then add current debt, value of healthcare coverage, and college costs.
Take into consideration other help your family might get if you die, including life insurance benefits provided by an employer and Social Security survivors benefits (see "Other Sources of Death Benefits," below).
Because for obvious reasons your age is a major factor in how much you’ll pay for life insurance, lock in lower rates by buying younger rather than older. The best rates available to a 40-year-old today for a 20-year policy will be far lower than what they’ll pay by waiting 10 years to sign up for a 10-year one.
Err on the side of buying a longer-term policy. You just can’t completely predict what your life will be like 20 plus years from now: You might marry, have children, get divorced, have grandchildren, lose your job, colonize Mars…So many possibilities! If 15 years into a 20-year policy you feel like it’s a waste of money, you can always cancel it.
Consider Other Sources of Death Benefits
When thinking about how much life insurance coverage to buy, consider these other possible sources of death benefits for your family.
Employer-paid group coverage—If offered, compare what you can get from your employer vs. what it costs to pay for it on your own. And assess whether your group coverage is enough; if you think your family will need more money, buy an extra policy on your own. Keep in mind that you’ll lose any group coverage you have if you change jobs.
Social Security death benefits—One-time payment of $255 to a surviving spouse or child who is eligible for benefits on the deceased’s record.
Social Security survivors benefits—If, at the time of your death, you were living with and caring for an unmarried child (and, under certain circumstances, a stepchild or grandchild) under age 18, each is entitled to survivor benefits equal to 75 percent of what you would have received each year when you would have reached full retirement age. Your spouse also can receive a survivor benefit while caring for a child under age 16. The maximum payout per family is 150 to 187 percent of your annual benefit amount. Widows and widowers age 60 and older are also entitled to survivor benefits. Different rules and amounts apply to disabled spouses and children.
Use the Social Security Administration’s website’s retirement calculator to see what survivor benefits your family would receive. Maximum benefits vary based on your age and earnings history, but for 2021 the maximum amount for top earners is about $2,300 a month per surviving child and spouse, with a family maximum survivor benefit of about $5,400 per month.
Military and veterans death benefits—If you die while on military active duty your family is entitled to a tax-free death gratuity of $100,000. They, and survivors of veterans who died as a result of service-related injuries or diseases, may also be entitled to income benefits from VA Dependency and Indemnity Compensation.
Pensions—Most pension programs, including those for the military and federal government employees, continue to pay benefits to qualifying widows and widowers.
Legal settlements—Families who lose loved ones in accidental deaths often are compensated by liability or malpractice insurance policies bought by companies, healthcare providers, or drivers that were at fault.
How Are Rates Determined?
How much you’ll pay depends on several factors:
- The company you choose—As the table at the end of this article indicates, some insurers charge prices that are less than half what their competitors charge for the exact same policyholder and coverage.
- Age—It’s less risky to insure the life of a 30-year old for 10 years than it is to insure a 50-year old for the same length of time.
- Gender—Because women tend to live longer than men, they pay lower rates. For a $500,000, 20-year policy, a healthy 40-year-old man will pay about $350 a year; a woman will pay about $300.
- Policy length—The longer the company insures you, the greater the odds it will have to pay out. More risk means larger premiums. It’s still better to buy coverage for too long a time period than too short.
- Health conditions—Companies will ask about your height and weight and existing or previous major medical conditions, then assign a price tier based on health risk. Many companies require you submit to a medical exam in your home and lab tests.
- Tobacco use—If you use tobacco, including nicotine replacement products, you’ll likely pay four or more times higher premiums than someone who doesn’t. Even if you’ve quit, you’ll pay double or more until you’ve been tobacco-free for five or more years. Some companies include marijuana smokers in their tobacco-use categories; others don’t care. Many allow “occasional celebratory cigars.”
- Family history—Companies often charge 35 to 100 percent higher rates if one of your parents or siblings was diagnosed or died of cardiovascular disease, stroke, or cancer before age 60.
- Driving record—Most check whether you’re a maniac behind the wheel. If you’ve been cited for numerous speeding tickets, a DUI, or reckless driving, you can pay 35 to 150 percent more.
- High-risk hobbies and sports—The best rates are reserved for those who agree not to jump out of planes, SCUBA dive, rock climb, and so on.
- History of mental illness—Insurers seek to assess suicide and accident risk. If you have a mental illness or disability, including depression, you likely can still qualify for the best rates if you receive treatment for it. Most companies don’t levy higher rates for anxiety disorders unless the patient has a history of panic attacks.
- International travel to high-risk regions—Companies used to ask only if you plan to travel to countries that the State Department designates as high-risk destinations for U.S. citizens. But our shoppers were repeatedly asked about any foreign travel during the COVID-19 pandemic (they committed to not travel internationally until vaccinated and that seemed a good enough answer).
- Payment plan—Many companies provide discounts if you pay premiums annually instead of monthly.
While your age, health, and tobacco use will greatly affect your rates with all companies, some care more than others about various risk factors when setting rates. For example, we found some companies give little or no weight to hazardous hobbies and some didn’t care much about recreational marijuana use.
When answering questions, be honest, even if you know it will result in a higher rate. You don’t want to pay premiums for several years only to have the company deny your family a payout after an investigation uncovered you were a secret smoker or bungee-jumping adrenaline junkie.
Policy Features Worth Considering
Most agents our shoppers encountered pitched various policy riders or told them about companies offering policy enhancements for free. Here are some term-life-policy features to consider:
- Financial ratings—If you buy a policy that covers 20 years, you want to make sure the company providing the plan sticks around at least that long. Consider policies written only by insurers that receive top financial soundness ratings from groups like A.M. Best, Fitch, Kroll, Moody’s, and Standard & Poor’s.
- Guaranteed level premium—This is a standard feature of term life policies but double-check that the company will keep your premiums the same for the duration of the contract.
- Pay-annually discount—Some insurers charge less if you pay semiannually or annually instead of monthly.
- No medical exam—You typically pay more for this convenience but not always. Guaranteed acceptance plans take all who apply and for obvious reasons are almost always costly.
- Disability waiver of premium—If you are disabled this rider pays your premiums. Some companies include this feature in their basic plans; it’s not worth paying too much more to get it.
- Accelerated death benefit—If you’re diagnosed with a terminal illness and are expected to die within 12 to 24 months, this rider allows you to collect part or all of your death benefit before you die to pay medical bills, compensate for lost wages, etc. Most life insurance companies offer this feature for little or no additional cost, but what they offer varies by company, so read the fine print.
- Renewal guarantee—Lets you renew your coverage when the original term runs out. Because you’ll be older at that time, you’ll have to pay a higher premium to do so, but you won’t have to pass a new medical exam or provide other evidence of insurability, a big benefit if you’ve developed health problems. At the end of most term life policies you also have the option to switch to a whole life plan, a valuable option for those who have developed serious health problems.
- Accidental death—You can buy often-inexpensive standalone accidental death policies, but we don’t like them—why limit conditions of payout to accidents? Some term insurance plans offer a rider to pay extra if you die in an accident.
- Return of premium—You can buy term life insurance with a rider that returns your premiums to you at the end of the term if you’re still alive. But this add-on feature costs more and we recommend that you focus on paying as little as possible for term life and invest the extra money elsewhere.
How to Find the Lowest Rates
Two Checkbook staffers—a 48-year-old male and a 40-year-old female—collected price quotes from agents and online comparison sites for $500,000 term life policies for 10, 15, and 20 years. Both should qualify for companies’ best rates (excellent overall health, no tobacco use, low-risk family medical histories, etc.).
Each found big company-to-company price differences. The table at the end of this article reports rates they collected from a sample of online comparison sites, local independent agents, and large insurance writers.
As you can see, our 48-year-old male would pay $709 per year for the lowest priced policy offered by LifeQuotes.com for a 20-year plan, compared to $1,896 a year with Allstate. Over 20 years, premiums with these companies would run $14,180 and $37,920, respectively—a difference of $23,740.
Our younger (and smarter and more pleasant) female colleague would pay less for coverage, but still benefited greatly from shopping around. The least expensive 20-year plan for her was also offered by LifeQuotes.com for $288 per year (an independent agent offered the same coverage for $290 per year). Her most expensive price was from an agent that sells policies for Erie, for $780 per year. Over 20 years, those cost differences add up to total payments of $5,760 vs. $15,600—a difference of $9,840.
To shop around quickly, use websites that work with multiple insurers to report on—and sell—their policies. We checked rates using AccuQuote.com, eFinancial.com, LifeQuotes.com, and SelectQuote.com; we report below the lowest rates we found on each of these websites.
Among the online outfits we tried, we liked LifeQuotes best because it supplied us with consistently low pricing, didn’t require us to provide our contact info before revealing its best rates, and appears to work with more insurance companies (more than 50) than the others, all highly rated for financial security.
Since each website works with a slightly different mix of insurance writers, we think it’s worth checking rates with the three other comparison websites to make sure you don’t miss out on a better deal. Unlike with LifeQuotes, you’ll have to supply your name, email, and phone number before receiving prices from the other sites. That allows their agents to call to try to close sales—and they sure did call, within minutes; repeatedly; for weeks.
Once you agree to buy a policy, the sales rep will route you to an affiliated insurance agent to finalize things.
It’s also worth asking a few local independent agents for proposals. Our shoppers found they typically gave quick, competitive pricing and great insights on which companies waive medical-exam requirements and lab work, and which ones made signing up and approval easy (some insurers had months-long backlogs).
Price-comparison websites and independent agents won’t supply you with pricing for some large insurers such as State Farm and USAA; they sell coverage through their own agents. If you can stand an extra 10 minutes of sleuthing, you may as well collect rates from these companies’ websites, plus Mass Mutual and Nationwide, not offered by the four online brokerages we checked; we found it easy to obtain rates from all of them.
Don’t assume that the agencies and companies where we found low premiums will also offer you the best rates. Take the time to check multiple online options and include a few independent agents.
Be Smart About Sign-up
Remember, it’s important to answer any questions honestly. Deception could mean your family gets denied a payout later.
Because companies use height and weight to estimate body-mass index, if you think yours is borderline for a good rate, ask agents to check on requirements from multiple companies. Not all use the same criteria when assigning health-risk categories to new customers.
For example, one insurance agent advised us that to qualify for one company’s lower priced “preferred plus” rates, a male who is five-foot-eight would need to weigh less than 184 pounds, so if he weighed 193, he would qualify only for higher-priced “preferred” rates. But another company would offer its lowest “preferred plus” rate to the same dude even if he weighed as much as 197 pounds. In this scenario, the price difference was $374 per year.
When weighing yourself—or when stepping on a scale during an exam—do what you can to lower the measured pounds. Wear light fabrics, no jeans, shoes off, take your phone and keys out of your pockets, etc.
Some companies require medical exams and lab tests before finalizing coverage; others don’t unless they think there’s an increased chance that you’re a higher risk due to your age, family history, etc. Some offer discounts to customers who get exams. (Note to tobacco users: The lab tests usually look for nicotine, cotinine, and anabasine, which indicate whether you’ve smoked or used a nicotine-replacement product in the last week or so.)
If you can buy a no-exam, no-labwork policy without paying more, grab it. You’ll avoid not just the hassle of scheduling and undergoing exams; you’ll also remove the chance of an oddball test result increasing your premiums or forcing you to start shopping all over again.
Even if an insurance company doesn’t require a medical exam, it still can find out things about your health by tapping into databases that report on prescriptions you take and, with your permission, will request your medical records.
If you’ve survived a serious medical problem or illness, don’t assume you can’t find affordable coverage—check on rates, and then, if you find coverage is expensive, re-check every year or so. Robert Bland, the CEO of LifeQuotes, told us that “The lookback period on cancer might be three years cancer-free at one company, five at another, and seven at a third.”