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Life insurance safeguards your loved ones’ financial future if the unthinkable happens.
The good news is that buying life insurance has gotten easier — you can purchase life insurance through an agent, broker or even online. Online and no-med policies have simplified and expedited the life insurance buying process.
Read on to learn how to buy life insurance, what the application process involves and how to get the most affordable policy. By performing your due diligence, you can save money on premiums and ensure a safety net for your beneficiaries.
How to shop for a life insurance policy
There are a few ways to get a life insurance policy:
- Request life insurance quotes directly from a life insurance company’s website
- Get life insurance quotes from an online quote aggregator site, which lets you compare multiple insurer’s rates
- Contact a life insurance agent in your area
Going online is the easiest way to get life insurance quotes. You can do it from anywhere — all you need is your laptop or phone. But, building a relationship with an agent and broker can also be helpful.
“Nothing beats a trusted insurance agent whom you already have a relationship with. Ask what life insurance options they have available,” suggests Jonathan Voegele, agency vice president for the Central Region of COUNTRY Financial in Bloomington, Illinois.
Figure out what type of life insurance you need
There are two major types of life insurance: term and permanent life. Knowing which type is best for your needs is the first step.
One thing that they share is they both pay out a death benefit to beneficiaries, usually in a lump sum.
Term life insurance
Term life insurance lasts for a set number of years, such as 20 or 30 years. If you outlive your policy, your loved ones don’t get a death benefit when you die.
“Term insurance pays only if death occurs during the term of the policy, which is usually from one to 30 years,” says Mark Friedlander, director of Corporate Communications for the Insurance Information Institute in St. Johns, Florida.
With term insurance, you can choose either:
- Level term: The death benefit stays the same throughout the period of time
- Decreasing term: The death benefit drops, usually in one-year increments, over the course of your policy’s term.
Level term is the most popular and recommended type of term life insurance.
Permanent life insurance
A permanent life insurance policy lasts your entire life, as long as regular premium payments were made. It also comes with a cash value component.
Four types of permanent life insurance are:
- Whole life: The death benefit and the premium stay the same throughout the life of the policy. Whole life also offers a cash value, which sets aside part of the premiums paid and lets you tap into the life insurance policy while you’re alive.
- Universal life: With universal life, you can alter premium payments after you accumulate enough money in your policy’s cash value, as long as there’s enough money in the account to cover the costs.
- Variable life: Combines the death benefit with a savings account that can be invested in stocks, bonds, and money market mutual funds. The value of the policy may increase more quickly depending on the investments, but that comes with more risk. If your investments don’t perform well, the death benefit and cash value may decrease, but some policies guarantee the death benefit won’t fall below a minimum threshold.
- Indexed universal life insurance: Similar to universal life insurance, the cash value in indexed universal life insurance can be used to cover premiums. The cash value grows based on a stock index, but there are caps on how much you can ear. Likewise, if the market is doing poorly, there are floors on how much you can lose.
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 | Ethos
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Determine how much life insurance you need
To help determine how much coverage you should get, think about the financial needs your beneficiaries will have if you pass away, including:
- Mortgage
- Future education costs
- Loans
- Everyday expenses
- Child care
- Funeral expenses
John Buenger, senior financial manager and advisor at the Rice Agency in Hagerstown, Maryland, says a good rule of thumb to follow is to purchase life insurance that will pay out 10 times your annual income in death benefits.
“An applicant earning $100,000 annually should probably purchase between $750,000 to $1 million in life insurance death benefits,” he says. “This death benefit should be large enough to cover [all] of your final expenses and funeral costs, pay off debt that includes any outstanding mortgage balance, automobile loans, credit card debt, and student/education loans, and cover your loss of income for a significant number of years.”
Manny Lirio, vice president of growth at Everydays, says it’s also crucial to consider your investments and liquid money that can be turned into cash within three months.
“The difference between your total expenses and total worth can help ensure that you are buying the right amount of coverage and not overinsuring yourself,” says Lirio.
Not sure where to start? Use our life insurance calculator to help you figure out how much life insurance you need.
Get life insurance quotes
Whether you request a life insurance quote online, over the phone, or in person, you can expect the process to be relatively short. You will be asked a series of brief questions related to your health, occupation, financial assets, and more.
You should get quotes from at least three to five insurers to make sure you’re getting the best possible price for your profile. Some insurers will charge you more than others, so make sure to compare costs.
After comparing quotes, you can submit an application to the insurer of your choice.
“Once approved, your policy is often issued within a few days and will be put into effect upon the insurance company receiving your first payment,” says Jake Irving, owner of Willamette Life Insurance in Beaverton, Oregon.
Premium costs vary based on many factors, including age, health and gender. Unlike other types of insurance, life insurance doesn’t consider your ZIP code when setting premiums.
How to compare life insurance quotes
Gather at least a few quotes from different life insurers so that you can make an apples-to-apples comparison.
To help narrow down the right policy, company, and price for you, Friedlander advises following these criteria:
- Product: Choose a company that offers the policy and features that meet your needs.
- Company identity: Make sure you know the full name, home office location, and affiliation — if any — of any insurer you consider.
- Financial strength: “Life insurance is a long-term arrangement. There is no guarantee for life insurance policyholders similar to that provided for bank accounts by the Federal Deposit Insurance Corporation. So select a company that is likely to be financially sound for many years by using ratings from independent rating agencies, such as A.M. Best, Fitch, Moody’s, and Standard & Poor’s,” he says.
- Market ethics: Find out if the company abides by the principles and codes of conduct of the Insurance Marketplace Standards Association.
- Advice and service: Try to choose a company with a helpful, responsive, and attentive customer service department.
- Claims: Check a national claims database to see what complaint information it has on a company. Visit the Better Business Bureau ratings page for the insurer. “Also, your state insurance department will be able to tell you if the company you are considering doing business with has had many consumer complaints,” Friedlander adds.
- Cost: Realize that premiums can vary widely among companies.
What documents you need to buy life insurance
Several things are required to complete a life insurance application. Be sure to gather the following before applying:
- Name, address, phone number, and date of birth
- State/country of birth
- Citizenship, gender, and marital status
- Occupational status, including details of your job responsibilities and salary
- Net worth
- Driver’s license number
- Social Security number
- Health history information and physician contact information
- Credit card or bank information for payment (when you are ready to purchase)
“Be as honest as possible during the application process. Most insurance companies have ways of finding out medical backgrounds. If their search does not match up with what you indicated in the application, your policy may get denied,” recommends Voegele.
