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The idea behind life insurance — that it’s one way to help protect loved ones — is fairly simple. But navigating the sea of options and figuring out which policy to go with isn’t always so straightforward.

Below are tips for comparing life insurance policies and understanding the insurance buying process.

Choosing the Right Policy

Before you start reviewing different life insurance options, it’s a good idea to first decide which type of policy you need. The following guidelines can come in handy.

Buying Term Life Insurance

Term life insurance offers protection for a specific time period, usually in five, 10, 15, 20, 25, or 30 years. If you die during that time, your beneficiaries receive a cash benefit.

A term policy can be matched to a particular length of time when coverage is needed. For example, if your top priority is to provide enough income for your dependents to pay for college, then a 20-year policy fits your needs. Or if you need a policy that will help your beneficiaries repay outstanding debts, maybe a 25-year policy would make more sense.

If your budget is limited, buying term life insurance may make more sense. These policies tend to be more affordable than permanent life insurance because they are statistically less likely to pay out than permanent life policies.

Typically, there are a couple of reasons a term policy expires: if the insured stops paying the premiums or if they live past the term of the policy. Renewal is possible, but terms and rates may vary based on the applicant’s health and age. (The renewal is typically in one-year increments and the cost will likely be significantly more than the cost during the initial term.)

Insured people who wish to extend their policies may want to contact different providers to determine how continuing coverage after the end of their life insurance terms generally works.

If your financial needs change during the term of the life insurance policy, contact your insurer. Some may offer a convertible policy, which involves converting a term life policy to a permanent policy in exchange for higher premiums.

Buying Permanent Life Insurance

Permanent life insurance works a bit differently. For starters, it provides protection for the insured’s lifetime, as long as the premiums are paid.

Unlike term life, a permanent life insurance policy will pay a death benefit no matter when the insured passes away. It may also come with a savings component, which can grow on a tax-deferred basis and be used to borrow funds for a variety of reasons or pay premiums. Even if the insured has less than ideal credit, the funds can still be borrowed against. In that case, the death benefit is considered collateral for a loan. (Make sure to check with your insurance provider or other advisor before withdrawing money because taking cash out of the policy can cause it to collapse unless the death benefit or premiums are adjusted.)

In practice, this can mean that when the insured passes away before repaying what was borrowed against the policy, the life insurance company deducts what’s still owed from the beneficiary payout.

There are several other options for permanent life insurance, including:

•   Whole life insurance. This coverage provides foreseeable lifelong coverage, which includes a fixed premium and death benefit.

•   Universal life insurance. Universal life insurance provides flexible lifelong protection and several cash accumulation options.

•   Variable universal life insurance. This type of coverage offers flexible death benefits and several investment options for the cash accumulation component.

It’s important to note that permanent life insurance is typically more expensive than term life insurance. So, when weighing out the options, the cost of the policy might be a crucial factor to calculate.

Recommended: Term vs. Whole Life Insurance

Calculating the Right Amount of Coverage

There are several different ways to calculate how much coverage is necessary. Some insurers recommend multiplying the insured’s salary by five or 10. While that can be an effective rule of thumb, be sure to account for all your beneficiaries’ anticipated needs. For instance, you might need a higher coverage amount if you have children and plan on helping them pay for college. On the other hand, if additional resources or assets are available to your beneficiaries at the time of your death, a lower coverage amount might make more sense.

Another option is to use an online life insurance calculator to estimate the cost of different levels of coverage. If you go this route, be sure to include all the debt that beneficiaries or an estate may be responsible for, including shared revolving debt.

Keep in mind that the amount of life insurance coverage you choose will impact the price of your monthly premiums.

Comparing Life Insurance Providers

Once you’ve determined the right type and amount of life insurance coverage you need, it’s time to gather life insurance quotes. Look for insurance companies with established financial histories, strong consumer ratings, and flexible product offerings. Several credit rating agencies look at insurance providers’ overall financial strength and their ability to meet existing insurance obligations (i.e., paying out the benefits).

But ratings aren’t a guarantee, so be sure to review ratings for all the companies you’re considering. For example, A+ and A++ are A.M. Best’s superior ratings. They denote companies that, according to the agency’s analyses, have shown an exceptional ability to meet their insurance obligations and have evidenced financial strength. (All 50 states have a program to ensure that insurance proceeds are paid if an insurer becomes insolvent.)

Recommended: How to Buy Life Insurance in 9 Steps

Gathering Multiple Life Insurance Quotes

Some providers require you to complete a simple online application before you receive a quote. In order to provide an accurate quote, the insurance company may ask you to share some personal details, such as your age, location, gender, health, and desired coverage.

Since permanent life insurance policies tend to be more complex, it can be wise to consult with an agent who can help you compare the pros and cons of different types of policies.

Comparing Life Insurance Quotes

Here are some things to pay close attention to as you’re reviewing life insurance quotes and considering which policy meets your needs.

Cost

The cost of a policy is generally determined by underwriters employed by the life insurance provider. They look at numerous factors, including applicants’ age, health conditions, and medical history to determine the risk for covering them.

While each provider may use similar methodologies, costs can vary depending on the amount of coverage they are willing to provide and the price paid by the insured.

Again, the value of the company and the services offered can also play a role in how much a policy may cost. So while aiming to get the lowest monthly bill may seem like the right solution, it’s wise to evaluate if that lower-priced option can provide the desired coverage over the life of the policy.

Customization

Since no two people have the same financial goals or coverage expectations, some insurers offer policies designed to match a given applicant’s specific needs.

For example, insurers may offer different riders or payment plan options to customize a policy to fit an individual’s goals. Insurers who offer more flexibility might be a better fit for some buyers.

Product Range

Buying life insurance from a company that offers a wide range of products is not only a convenient way to shop for insurance, it may even help you save money. That’s because insurance companies sometimes offer discounts for bundling multiple insurance policies together, like life, automobile, or rental insurance.

People shopping for life insurance can review the other products each insurance company offers to determine if buying a bundled policy can save time, money, and the potential hassle of working with more than one provider.

Long-Term Cash Value Potential

Since permanent life insurance has a cash value component that can grow over time, it’s important to factor this trait when comparing each policy’s potential value. Although low-cost policies may seem like an attractive option, they may not provide as much coverage over the life of the policy.

For buyers who prioritize cash value and dividend distribution, picking a life insurance policy that offers either or both of those features may be a good choice. But keep in mind: Policies with higher dividend payouts are, typically, more costly each month. Many policies have guaranteed rates of return depending on the investment options. However, the market will often outpace the guarantees in insurance policies so consider your investment objectives and risk tolerance before getting a life insurance policy as an investment vehicle.

Using an Agent

While it’s possible to buy life insurance online, sometimes it’s wiser to contact an insurance agent. Because different life insurance products come with varying fine print details, an insurance agent could help buyers grasp the key differences between policies and products. Buyers can also ask them any lingering questions.

An agent who is well versed in the product’s details can also explain important distinctions like cost, coverage limits, and varying terms. It’s worth noting that any insurance agents are paid on commission. In most cases, you will not pay more by going through an insurance agent. The commission is included in the quote and goes to the insurer if the policyholder buys a policy directly from an insurance company.

The Takeaway

Life insurance can be a good way to provide for your loved ones after you’ve died. There are different types of policies to consider. Term life insurance offers coverage for a specific period of time; if you die during that time, your beneficiaries will receive a cash benefit. Permanent life insurance offers protection for the rest of the insured’s life and will pay beneficiaries a death benefit no matter when the insured dies. It often comes with a savings component that can grow on a tax-deferred basis and be used for a variety of purposes.

As you begin to research companies and gather quotes, take note of the cost, ability to customize, long-term cash potential, and range of products the insurer offers. An agent can help you make sense of your options and select the plan that’s right for you.

If you’re shopping for life insurance, SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. You can apply in just minutes and get an instant decision. As your circumstances change, you can easily change or cancel your policy with no fees and no hassles.

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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If you’re trying to decide if you need life insurance, ask yourself: Would anyone be put at risk financially if I weren’t around anymore?

Many jobs come with a benefits package on top of paid wages or salary — things like, health insurance, dental insurance, and 401(k) retirement accounts. Employer life insurance may also be included in a benefits package to give an employee’s beneficiaries some added financial security in the event of their death.

According to the U.S. Bureau of Labor Statistics, approximately 98% of workers with access to employer life insurance choose to participate. But is life insurance offered through your employer enough to take care of your loved ones if you pass away?

There’s no one-size-fits-all approach to financial planning and purchasing life insurance. Depending on an individual’s unique situation and financial goals (or obligations), the amount of life insurance coverage needed can vary from person to person.

To help determine how much life insurance is right for you, let’s break down the basics of employer life insurance and how different policies might work in practice.

What Is the Typical Coverage Offered?

Commonly, employers that provide life insurance purchase a group term policy for their employees. Term life insurance grants coverage for a specific time period, known as the term, in exchange for regular payments (called premiums) by an employer or the insured employee. Unlike individually purchased term insurance, the term for group insurance is typically the duration of the employ of the insured.

Group term life insurance can also vary by amount. An employer may offer a flat rate of coverage to their employees. Or, in some cases, an employer may calculate the total life insurance coverage according to an employee’s current salary. For example, an employer life insurance policy may pay out one, two, or three times the employee’s annual salary.

While the benefit coverage amount under employer life insurance may vary by salary, you may still qualify for a group policy even if you’re older or have pre-existing conditions and less-than-perfect health. However, note that coverage may lapse when employment ends or if an employee switches from full-time to part-time work. Some companies offer policies that are “portable,” meaning the employee can take the policy with them when/if they leave the employer.

Life insurance could reinforce a long-term financial plan.

If an insured employee dies during the policy’s term, the insurance company is then responsible for paying the coverage amount to the designated beneficiaries, barring a few exceptions, like suicide within two years of the policy start date or death from an exempt hazardous activity (e.g. piloting a plane).

This payment is called a “death benefit,” and can be paid as a lump sum or in installments depending on a policy’s conditions. On the other hand, if an insured employee dies after the insurance term ends, their beneficiaries do not receive a payout of death benefits.

Recommended: What Is Life Insurance & How Does It Work?

How Much Can Employer Life Insurance Cost?

For employers with many employees, obtaining a group life insurance policy parallels wholesale purchasing, meaning that the price per individual is generally less than if each employee paid for their own policy. Therefore, employment life insurance is usually very affordable for employees, if not free, for the most basic coverage.

However, this sort of baseline benefit does not account for additional coverage, which employers may also offer (on top of the standard group policy) at the partial or full expense of the employee.

Determining if extra coverage through an employer is cost effective may depend on several factors, including age, health, income, and number of dependents. For example, smokers can pay up to two or three times more on life insurance premiums than their non-smoking counterparts.

Keep in mind that employer life insurance may be subject to payroll taxes, such as Social Security and Medicare. For any benefits coverage greater than $50,000 that is paid or subsidized by an employer, the total amount exceeding $50,000 would be counted as employee income by the IRS.

The threshold for taxation on coverage for spouses and dependents is significantly lower, at just $2,000. Any employer life insurance plan with coverage above $2,000 would be liable for taxation in its entirety.

Is It Possible to Switch Coverage?

Employer life insurance can be affordable, but it may not be very customizable or flexible.

Since the employer holds the group policy with a specific insurance company, employees do not usually have the individual discretion to shop around for the coverage offered in a benefits package.

Opting for an alternative or supplemental life insurance policy may require undergoing a life insurance medical exam. This exam could consist of a verbal questionnaire with a medical professional and collecting blood and/or urine samples.

Together, medical history and personal information are some of the different factors used to decide whether an applicant is eligible for life insurance coverage.

Information from the medical exam can impact the cost of the eventual insurance premium as well, assuming the applicant is deemed eligible. In this scenario, younger, healthier employees may opt to switch to an individual life insurance policy, since they could obtain a lower rate that may last for decades of coverage.

Since employer life insurance coverage can lapse when employment ends, it may be useful to research various policy options (or speak with a benefits specialist at your job) to ensure coverage is not interrupted when jobs change.

Recommended: How to Buy Life Insurance

What Happens If I Change or Lose My Job?

For many working adults, changing jobs is necessary for career growth and achieving financial goals. But changing or leaving a job may come with some financial challenges beyond a disruption to income. Employer benefits, such as health insurance, 401(k) retirement account, and life insurance may be put on hold or not carry over to a new employer.

Some insurance companies may let you transfer to a new employer’s policy, especially if they are the new employer’s insurance provider. In some cases, it may be possible to convert a former employer’s group term policy to individual term or whole insurance with the same insurance company.

When life insurance had previously been paid for or subsidized by an employer, taking out an individual policy could translate into an increased individual monthly expense. That’s because the policyholder, not the employer, would now be paying the life insurance premiums.

Whole life insurance, sometimes called permanent life insurance, is generally more expensive than term policies, since it can cover an insured individual for life.

What About an Additional Policy?

Employer life insurance could provide at little to no cost basic coverage for a family in the event of an unexpected death. But many people decide to take out additional insurance or expand their coverage through a rider, which is an add-on that allows insured individuals to customize their policy to their needs.

Cost and conditions for riders can vary between insurance providers. The following are some common types of riders that might supplement an existing life insurance policy:

•   Accidental Death Rider: If the insured individual dies from an accident, a greater death benefit is paid out to beneficiaries. This could be advantageous for a working parent to take care of surviving family’s future expenses if the unexpected were to happen.

•   Accelerated Death Benefit Rider: An insured individual could receive a portion of their death benefits while they’re alive if a diagnosed terminal illness is expected to significantly reduce their lifespan. This could help pay for the sudden cost of care and treatment, but might be subtracted from the amount family and beneficiaries receive upon the insured person’s death.

•   Spouse Insurance Rider: This rider can add a spouse to an insured person’s policy instead of taking out separate life insurance for them.

•   Waiver of Premium Rider: This rider can waive the need to pay insurance premiums while maintaining coverage, if an insured person becomes permanently disabled or can no longer work due to an injury or illness. Policyholders who are at risk due to dangerous jobs or family history may find this sort of policy worthwhile.

In addition to considering the perks and costs of riders, comparing term and whole life insurance is helpful for finding the right policy for you.

Determining How Much Coverage You Need

Everyone’s situation is different. And, securing life insurance may provide confidence and reinforce a long term financial plan. To figure out how much life insurance coverage may be needed, it can be helpful to first get an accurate picture of your finances and likely future expenses.

For people with children and dependent family members, a breadwinner’s death could result in lost income that supported essential spending, such as groceries, rent or mortgage payments, and utilities. It could also create additional expenses for childcare or a home health aide, if a surviving parent or caregiver then needs to work.

There are also down-the-road expenses, like retirement and college tuition for children, that could be impacted by the loss of a spouse, partner or parent.

Unpaid debt — such as, a mortgage loan, credit card balances, and student loans — are some long-term payments to factor in — since cosigners or the estate could still be left with the burden of making payments on certain debts. (Note that estate and debt laws vary from state to state).

Death can be accompanied by notable end-of-life expenses, too. On average, funerals cost between $7,000 and $12,000 depending on location and whether the deceased is buried or cremated.

In addition to savings and investments, life insurance can offer a financial safety net and support the future of those left behind.

The Takeaway

Employer life insurance can be an asset to a family’s financial security, as typically it grants coverage for a specific time period. The benefit coverage amount may vary by salary, and older employees or those with pre-existing conditions may still qualify for a group policy. Coverage could expire when your employment ends or if you move from full-time to part-time work. If you need more coverage, you may decide to take out additional insurance on top of your employer life insurance.

If you’re thinking about getting life insurance, SoFi has partnered with Ladder to offer competitive life insurance policies that are quick to set up and easy to understand. You can apply in just minutes and get an instant decision. As your circumstances change, you can easily change or cancel your policy with no fees and no hassles.

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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