State Farm is one of the leading life insurance providers in the country today. Is it the right choice for you? Does it offer products that meet your needs? More importantly, what are the pros and cons of choosing State Farm as your insurance provider?
We discuss the answers to these questions and more in this review.
About State Farm
State Farm was founded in 1922 as an auto insurance company. True to its name, it catered its products primarily to farmers. Today, it is one of the most reliable and established life insurance providers in the industry, servicing over seven million policies in the United States and Canada. The company is based in Illinois.
State Farm’s Financial Ratings
A.M. Best: A++
Standard & Poor’s: AA
As you can see, State Farm has received stellar ratings from the top rating agencies in the industry. It has nearly $250 billion in assets and employs over 70,000 people. It is as financially stable as they come and is a highly reliable and trustworthy company.
Insurance Policies Offered by State Farm
Term Life Insurance
State Farm offers four distinct types of term life policies – select term life insurance, return of premium term life insurance, mortgage term life insurance, and instant answer term insurance.
Select Term Life Insurance
As the name indicates, the policy allows you to select the term length – 10, 20, or 30 years. The death benefit starts at $100,000. The premium is calculated based on your age, health status, occupation, and a number of other factors. Once set, the premium does not change until the end of the initial term period.
Once the level term period ends, you can renew the policy annually up to the age of 95. Your premiums will increase every time you renew the policy. If you do not like to renew the policy every year, you can simply convert it into a permanent life policy after the initial term period.
Return of Premium Life Insurance
The policy is designed to cover you for a period of 20 or 30 years, depending on your needs. The premium is determined at the start of the coverage period and remains unchanged until the policy expires. If you are alive at the end of the level term period, the company will return the premiums you paid throughout the duration of the policy.
Just like the Select Term policy, this one too can be renewed every year up to the age of 95 after the expiration of the initial term period. Your premiums will increase gradually year after year. You also have the option of converting it into a permanent life policy.
Mortgage Term Life Insurance
This type of policy, as you probably already know, is tied into your mortgage. The policy term could be 15 or 30 years. The coverage starts at $50,000. During the first five years of the policy, the death benefit remains unchanged. If you die during that period, your beneficiary will receive the entire death benefit.
From the sixth year, the death benefit reduces proportionate to the outstanding balance on your mortgage. The best part, however, is that the death benefit does not get reduced to zero, even after your mortgage is fully paid off. It does not go below 20% of the original face value of the policy at any point.
Once you pay off your mortgage, you have the option of converting your mortgage term policy into a permanent one. Read more about mortgage life insurance.
Instant Answer Term Insurance
This is a policy which is designed to take care of your short term needs. It covers you for a period of 10 years or until you reach the age of 50, whichever is later. It offers a death benefit of $50,000.
The most notable aspect of the policy is that there is no need for you to undergo a medical exam. Instead, you are required to fill out a form containing questions related to your health status. The approval process is also lightning fast.
You can apply for the policy, fill out the form, and if accepted, buy the policy on the very same day.
Whole Life Insurance
Limited Pay Life
The policy is designed to protect you for a lifetime, but you can complete the premium payments in 10, 15, or 20 years, depending on your preference. Your premiums contribute to the cash value component, which grows on a tax-deferred basis, as well as the death benefit.
You can withdraw money from the cash value component or borrow against it for various purposes. The company might also pay you dividends from time to time, depending on the profits generated.
Single Premium Life
The policy offers a lifetime of protection and requires you to pay the premium in a lump sum. Since you pay the entire premium amount upfront, the policy has a substantial amount of cash value right at the start of the coverage period.
The cash value portion grows at a rate predetermined by the company. You will be paid dividends as and when the company makes sufficient profits. In the event of your death, the death benefit is passed on to your beneficiaries and they do not have to pay any income tax on it.
As the name suggests, final expense is life insurance designed to cover the costs of your funeral. The death benefit is fixed at $10,000. The premiums do not change until you turn 100. Despite the small death benefit, this policy too has a cash value component. You are also eligible for dividends, as and when the company decides to pay them.
Universal Life Insurance
Regular Universal Life
This is a traditional universal life policy with a severe deal of flexibility built into it. You can choose the amount of coverage you need and the amount will be passed on to your beneficiaries on a tax-deferred basis in the event of your death.
You can also choose the amount of premium you are willing to pay on a monthly or yearly basis, as long as the amount is not lower than the minimum premium payment mandated by the policy.
There is a cash value portion, which grows tax-free, at a rate determined by the insurance provider. Withdrawals and loans are allowed, but you need to pay it back with interest, failing which the outstanding amount will be deducted from your death benefit.
Survivorship Universal Life
It covers two individuals and the death benefit is paid out by the company when the second person dies. You get to choose the amount of coverage and the premium, subject to the company’s terms and conditions.
There is a cash value portion which accrues interest all through the policy’s term. The main benefit of the policy is that it offers protection for two people at very affordable rates. It is cheaper than buying two individual universal life policies.
Joint Universal Life
This is the most flexible universal life policy offered by State Farm. You can not only choose the amount of coverage and premium payments, but also increase or decrease them depending on your needs.
The death benefit is paid out by the company after the first person dies. The surviving person also has the option of buying another policy after the death of the first person. Like all universal policies, this one too has a cash value portion.
Advantages and Disadvantages of State Farm
Diverse Range of Policies
State Farm offers an exceptionally wide range of term and permanent life policies. So, no matter what your needs are, you can easily find a policy that fits the bill.
With nearly $250 billion in assets and top-notch ratings, State Farm’s financial strength and stability are beyond question.
Moreover, the company has consistently performed well, which is evident from the fact that it has paid out large amounts of dividends to its policyholders on a regular basis. In 2017 alone, State Farm paid $574 million in dividends to its policyholders.
Long Term Protection
The company’s term policies are designed in such a way that even after the completion of the initial term period, you can renew the policy every year until you reach the age of 95. The best part is that you do not have to undergo a medical exam every time you renew the policy.
Policy Conversion Option
All of State Farm’s term policies can be converted into permanent policies after the completion of the initial term period. The best part is that your health status at the time is not taken into consideration at all, which means you are assured of lifetime protection irrespective of your health condition at the time.
You can choose the amount of coverage you need and the amount of premium you can pay. You can also increase or decrease it, depending on your preference. If you prefer to pay the premium in a lump sum, you can opt for the single premium policy.
If you prefer to pay it over a span of 10, 15, or 20 years, you can opt for the limited pay policy. The policies are flexible and there are plenty of options for you to choose from.
State Farm stands out from most of its competitors in terms of customer service. It is rated by JD Power as the best insurance provider in the customer satisfaction category. The company is known for its hassle-free claim settlement process and its swift response to consumer complaints.
Availability of Information
State Farm has an excellent website, in which it has described all its policies in great detail. Unlike some companies, State Farm does not provide you with inadequate information and then ask you to contact them for more details.
Each policy is explained clearly so that you know what its features are and what you stand to gain if you buy it. You can also get a quote instantly through the website.
State Farm has one of the strictest underwriting policies in the industry. If you have any preexisting conditions, a family history of hereditary diseases, or even a subpar driving record, the company might charge you more.
This is a direct consequence of a strict underwriting policy. The guidelines are so strict that most people are not likely to meet them and are not likely to get the lowest possible rates, which are usually reserved for preferred, low-risk consumers.
If you are young and in the best shape of your life, you are likely to meet their guidelines, in which case you can get the best possible rates.
Lack of Variable Universal Life Policies
State Farm only offers traditional universal life policies, in which the cash value earns a moderate rate of interest. It does not offer variable universal life policies, in which the growth rate of the cash value portion is tied to the performance of the stock market and can be used as an investment vehicle.
Is State Farm the Right Choice for You?
State Farm is financially stable, offers a wide collection of policies, is known for its customer service, and allows you to convert term policies into permanent policies without undergoing a second medical exam. Its products are second to none in terms of the coverage offered and the flexible terms and conditions.
If you have any preexisting conditions (high cholesterol levels, high blood pressure, diabetes, heart disease, and many more), you are likely to be charged more, owing to the company’s strict underwriting guidelines.
In which case, you should look for other insurance companies which have relatively lenient underwriting guidelines and offer competitively priced policies even for high-risk consumers.
If you, on the other hand, are young, in good shape, have no preexisting conditions or a family history of diseases, you could get qualified for the lowest rated policies and receive adequate long-term coverage at very affordable rates.
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We can provide you with all the information you require and help you choose a policy that is best suited for your budget and needs. We can also help you find the right insurance company depending on your own needs as well as that of your family.
State Farm Life Insurance Review by Jonathan Holloway