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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 home, 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 may seem complicated if you have never done it before. Unlike home or auto insurance, there are many different types of life insurance policies. Each comes with potential pros and cons, as well as a wide range of premiums.
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 life insurance 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. Not all policies require a medical exam, but you’ll still likely need to answer health questions on the application.
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.
The coverage limit that is right for you will depend on your reason for buying a life insurance policy. If you want coverage to provide financial protection while you pay down a mortgage, for example, you may only need enough coverage to allow your beneficiary to pay the loan balance. If you want coverage to replace your lost income for your loved ones for many years, you probably need a higher death benefit. Your reason for choosing a certain amount of coverage could also influence if you buy term life insurance or permanent life insurance, which we’ll discuss in greater detail in the next step.
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 your dependents’ education or schooling. You can also use an online coverage calculator to help you out.
2. Pick a life insurance policy type
There are two main types of life insurance: term and permanent. Within permanent insurance, the two primary types are whole life insurance and universal life insurance. Term life insurance is usually less expensive with fewer 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. If you pass away during the term, your beneficiaries will receive a payout from the insurance company. Once the term is over, the benefits end unless the policy is renewable or convertible, which is offered by many insurers. It is important to note your premium will most likely increase with the new term.
- Whole life insurance: Whole life insurance is a type of permanent life insurance that provides lifetime protection as long as you continue to pay the premium, with fixed premiums and cash value. 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 also accumulates cash value, but the policy is flexible to allow you to change your death benefit and premium to fit your changing needs. There are several forms of universal life insurance, including variable universal life insurance and indexed universal life insurance.
Before you buy 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 probably want to find a few life insurance companies that appeal 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 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. You may also want to research and compare different life insurance riders, which are add-on coverage options that could give you a broader range of protection.
4. Request and compare life insurance quotes
Once you have selected a handful of potential providers, you can get quotes from each company. Most companies do not include the price of premiums on their website because rates are highly dependent upon your personal and health metrics. Getting quotes may help you determine which provider can give you the most affordable rate. Be mindful that life insurance premiums are based on several factors, including your age, medical history and occupation. Insurance providers also consider the coverage amount and type of policy you’re requesting.
Most major life insurance companies have an online quote generator that allows you to get an instant rate quote right from the website, but it’s not always available for all types of life insurance. If not, get in touch with an agent to provide you with a quote.
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. This typically includes information about your lifestyle, smoking history, past surgeries and medications you are taking. The insurance company will then use the information provided to calculate your life insurance rate, although the quoted premium may change after your medical exam if one is required.
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. Some life insurance applications can be filled out online, and it is usually a quick process. However, you should be prepared and have your medical information available, including a medication list and details regarding any chronic or pre-existing conditions.
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 may 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 likely be scheduled shortly after submitting your physical application if it’s required at all.
7. Schedule a life insurance medical exam
Many life insurance companies and policy types 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 may be able to visit your home or office to see you. They will generally take your vitals, like weight and blood pressure, and draw blood. The exam usually takes about 30 minutes, and you may be able to schedule it during your phone interview.
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 of the higher level of risk for the insurance company.
8. Wait for approval
When the application process is complete, your job is done. The insurance company’s underwriter will take the information gathered from your application, phone interview and medical exam to determine if you’re eligible for coverage and, if so, what your premium is. As there is so much information to review, the approval process may take several weeks.
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.
Other considerations when shopping for life insurance
When exploring options for life insurance, there are other important factors to keep in mind:
- Licensing: Each state has an office that regulates the insurance industry, and both insurance companies and agents must be licensed to sell life insurance in the state. You can conduct a licensee search with the department or division of insurance in your state to confirm the provider and agent’s status.
- Riders: Life insurance companies typically offer riders, but the options can vary. When choosing a life insurer, it may be worth checking that it has riders that suit your needs, such as a return of premium rider or child term rider. If so, consider how adding riders impacts the premium, and how that affects the coverage you’re able to afford.
- Financial goals: How much of your income is contributed to the household? Beyond basic necessities, is this amount used to help make progress towards financial goals? Consider the impact your death could have on meeting these important milestones.
- Employer-sponsored coverage: If you have life insurance through your employer, you’ll want to consider if it’s sufficient to cover your family’s financial needs if you pass away. If not, you’ll likely need an additional form of coverage. Also, be mindful that employer-sponsored policies generally become inactive once employment ends.
Frequently asked questions
The younger you are, the lower your life insurance premium generally is, assuming you are in good health. Age is one of the strongest predictors of mortality, so the older you get, the more likely it is that you’ll pass away during the policy period and that the life insurance company will have to pay your death benefit. This is why rates typically get higher as you get older. However, not everyone needs life insurance, even at older ages, so consider reviewing your situation with a licensed life insurance agent.
The amount of life insurance you need depends on your goals for the policy. If you’re buying term life insurance to provide financial security to your partner as you pay down your mortgage, you might only need enough coverage to cover the principal of your loan. If you want to provide money to send children to college, replace your lost income for your family, or leave a financial gift to your loved ones or an organization, you might need more coverage. Using a life insurance calculator may help you determine how much coverage you need, but you might also want to review your situation with a licensed agent.
No single life insurance company will be the best for everyone. To find the right company for you, you could look at the customer reviews, financial strength and policy options each company offers. You might also benefit from getting multiple quotes to determine which company could offer the right product and riders at the cheapest price.
During the application process, most life insurer health questionnaires will include a few COVID-19 questions. Previously having COVID should not impact your ability to purchase new life insurance coverage, according to the Insurance Information Institute. However, if you are experiencing long COVID symptoms, that may be considered a chronic condition and could impact the rate you are charged.