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Thinking about buying a life insurance policy, but don’t know where to start? You’re not alone—purchasing life insurance is much different than buying renters or auto insurance, and it’s generally a longer process. Fortunately, buying life insurance does not have to be difficult or confusing. Bankrate’s editorial team put together a step-by-step guide for purchasing a life insurance policy. We’ve also provided some helpful tips for choosing the right amount of coverage and getting the most affordable premium.
How to buy a life insurance policy
Purchasing life insurance can seem complicated if you have never done it before. Unlike home or auto insurance, there are many types of life insurance policies. Each comes with pros and cons, and different price tags.
Although some life insurance policies can be purchased online, it’s more common for life insurance policies to be purchased through an agent. Even if you can start a quote online, you’re often required to speak with an agent in order to finish the transaction. In addition, there are some aspects of the life insurance purchase process, like a medical exam, which must be completed in-person.
If you are in the market for life insurance, here are the steps you may find helpful in purchasing a policy that is right for you.
1. Decide how much coverage you need
The first step in getting life insurance is to figure out how much coverage is right for you. In general, you should probably consider buying enough coverage to support your financial dependents for several years after your death, based on your current lifestyle and financial situation.
Although there are many ways to calculate a potential coverage limit, one popular method is the DIME formula, which takes into account your debt and final expenses owed, total income based on what might be needed after your death, the amount left on your mortgage and any outstanding or expected expenses for schooling. You can also use an online coverage calculator to help you out.
2. Pick a life insurance policy type
There are two types of life insurance coverage: term and permanent. While there are many types of permanent insurance, the ones we’ll focus on here include whole and universal. Term life insurance is usually less expensive with less benefits, while permanent life insurance is typically more expensive as it offers more benefits. Here’s a closer look at what these policies cover and how they work:
- Term life insurance: Term life insurance is generally the cheapest kind of life insurance while you are young. It provides coverage over a specific term period, usually between 10 and 30 years. Term life insurance is used to provide financial support to your designated beneficiaries. For example, if you pass away during the term, your children or spouse will receive a payout from the insurance company. Once the term is over, the benefits end, unless the policy is renewable or convertible.
- Whole life insurance: Whole life is a type of permanent life insurance that provides lifetime protection in most circumstances, with fixed premiums and cash value. If you get insurance from a mutual company, the policy may also be eligible for dividends based on the company’s financial performance. With some whole life policies, policyholders have to pay their premium until they die, and other policies only require a premium for a certain number of years.
- Universal life insurance: Universal life is another type of permanent coverage. It accumulates cash value, where the money grows at a current market rate or fixed interest rate. There are several forms of universal life insurance, including variable universal life insurance and indexed universal life insurance.
You may want to do more research to find out which option will best meet your needs.
3. Research different life insurance carriers
Next, you will want to find a few life insurance companies that are appealing to you. Remember that no two companies are the same. When choosing a life insurance company, search the website and look at the policy options. The best life insurance company for you may offer a combination of competitive rates, coverage options that fit your insurance needs and a positive customer service experience. You can get an idea of a company’s level of customer service by reviewing J.D. Power studies for life insurance. Check for a company’s financial strength by reviewing ratings from AM Best, S&P and Moody’s.
4. Request multiple life insurance quotes
Once you have selected a handful of potential providers, get quotes from each company. Most companies do not include the price of premiums on their website, so getting quotes will help you determine which provider can give you the most affordable rate. Most major life insurance companies have an online quote generator that allows you to get an instant rate quote right from the website. If not, get in touch with an agent.
When you request to receive a quote, you will typically be asked to provide some personal information, including your age, address and gender. Additionally, you will likely need to submit basic information about your medical history. Usually, you are asked about your lifestyle, smoking history, past surgeries and medications you are taking. Generally, there is no need to submit official medical records to get a quote. The insurance company will then use the information provided to calculate your life insurance rate.
5. Fill out the application
After choosing the provider that fits your needs, the next step is to fill out an application. You will be required to include basic personal information, as well as your Social Security number and driver’s license number. Additionally, you might need to submit an Attending Physician Statement (APS), which helps the insurance company verify your medical history. The APS ensures you get the right policy, and is used when calculating death benefits. Most life insurance applications can be filled out online, and it is usually a quick process.
6. Prepare for your phone interview
After submitting an application, the insurance company might require a secondary phone interview. The interview is mostly used to confirm the information you included on the application, but there may be some additional questions asked. For example, the interviewer will want to know more about your lifestyle and hobbies, your financial health, your income and any other life insurance policies you have. The interview is generally quick and will be scheduled shortly after submitting your physical application.
7. Schedule a life insurance medical exam
Many life insurance companies require applicants to get a physical exam before they can be approved for coverage. The life insurance medical exam is like a regular doctor appointment, but the insurance company’s medical examiner will visit your home or office to see you. They will take your vitals, like height, weight and blood pressure, and draw blood. The exam usually takes roughly 30 minutes, and you can schedule it during your phone interview.
However, not all life insurance policies require a medical exam. If you meet certain requirements, you might be able to get approved for coverage without an in-person exam. While this can expedite the approval process, no-medical-exam policies are usually more expensive because it’s riskier for the insurance company.
If you are healthy enough to pass a medical exam and don’t mind waiting a few weeks for approval, it’s generally recommended to take a medical exam because your rate will probably be much lower.
8. Wait for approval
When the application process is complete, your job is done. The insurance company’s underwriter will take the information they gathered from your application, phone interview and medical exam to determine if you’re eligible for coverage, and if so, what your premium is. Because there is so much information to review, the approval process can take several weeks, or up to a month.
If you get approved and are happy with the quoted premium, you will be sent the policy documents to sign and approve. While traditionally, this process is conducted with a physical copy, technology sometimes allows this paperwork to be completed with a digital signature. You will also decide if you want to pay your premium monthly or annually. After the policy documents are signed, you might be asked to mail a physical copy to your insurance company. It is typically recommended to keep a second copy on hand in your home.