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If your loved ones depend on your income, consider buying life insurance as a key part of your financial plan. These are the nine steps to finding the coverage you need at a price you can afford.
These are the common terms you might come across when you’re shopping for life insurance:
There are a few ways to go about buying a policy independently:
What’s the best way to buy life insurance? It’s really up to you. If you’re familiar with life insurance policies or are willing to do the majority of the legwork, comparing policies online or going directly to an insurer could save time. But if you have complex life insurance needs — such as a pre-existing medical condition, a poor driving record or a history of substance abuse — an agent or broker can help you navigate your options.
Most life insurance policies fall into one of two categories: term or permanent. For most people, term life insurance is the cheapest, most straightforward to cover expenses during key working years.
The simplest and most straightforward policy, term life insurance lasts for a set period of time — like 10, 15, 20, 25 or 30 years. If you die during the term, your beneficiaries will receive a death benefit equal to the value of the policy.Because this type of coverage is temporary, term life is less expensive than a permanent policy.
Performance life insurance policies offer lifelong coverage — as long as you pay your premiums. They offer a guaranteed death benefit and also earn cash value over time. Since they have an investment component, these policies cost more.
Once you’ve settled on a policy, think about how much money your beneficiaries will need to maintain their lifestyles when you’re gone — and aim to take out a policy to match.
To crunch the numbers, take these factors into account:
The US has the largest life insurance market in the world, so you have plenty of options. To filter your list of reputable insurers, consider:
Then, compare quotes from your shortlist of companies. Most insurers will offer anonymous quotes, or only ask for basic health and contact details to give you a rate.
Consider coverage amounts and premium prices, and settle on a policy that meets all of your needs. Life insurance is an investment, and you need to be able to pay your premiums to keep your policy in force.
Most insurers allow you to customize your coverage with riders, such as:
Jake Tamarkin
Cofounder of Everyday Life Insurance
1. Buying life insurance can feel like a complex and unpleasant process, so people often take the first option to just get it over with asap, even though it may cost them thousands of dollars extra over time. The insurance companies know you want to do this and are quite happy to charge you quite a bit extra for that convenience. A life insurance policy is a big ticket item — you wouldn’t take a shortcut on your house or car, right?
2. Shopping based on budget, rates and product features (i.e. the way the insurance companies want you to shop) as opposed to taking the time to truly understand your needs and then going from there. These are big, long-term contracts. It’s worth figuring out what you need before you go shopping around, and considering how your needs are going to change over time.
3. Remember that insurance agents are salespeople, not financial advisors. In most cases, they’re not required to act in your best interest. So, it’s a mixed bag in terms of the quality of advice you will get from them, and it pays to get a second opinion. As a rule of thumb, most healthy-ish people should be able to get all of their life insurance needs met at a cost of less than 1% of their income. In other words, if you’re making $50,000/year and the agent is recommending a policy that costs more than $500/year, tell them to take a hike!
Anthony Martin
CEO & Founder of Choice Mutual
The biggest mistake people make is thinking life insurance advertisements are real. We all see ads that say “buy $500,000 of life insurance for $29 per month.” While that technically is a real offer, people fail to realize the specifics behind it. Offers like that are quotes for a young healthy female buying a policy that lasts only 10 years.
Life insurance advertisements greatly distort the public’s perception of what life insurance will — and should — cost. This causes a lot of people to put off getting insurance because they think if they just keep looking around, they’ll eventually find an offer that mirrors what they see on TV.
The other mistake people make is to avoid a medical exam. While getting a policy that’s approved in 24-48 hours is really nice, you pay for that convenience. People are busy these days and often want to skip carving out an hour for the exam, but it comes at a great price. When shopping for life insurance, you should be open to doing a medical exam to get access to much lower rates.
Tony Steuer
Chartered Life Underwriter (CLU) and author
The most common mistakes include not considering all of their options. When looking for term insurance, insurance companies have varying underwriting parameters for their preferred rate classes, and if consumers only receive offers from one or two companies, they may not be getting the lowest rate class.
It’s important that consumers work with an agent or broker that represents multiple insurance companies. One company may view a certain condition such as build (height/weight) as a standard risk while another company will view it as a preferred risk and offer a premium that is significantly lower.
Lastly, it’s important to match your insurance needs to the insurance product. Insurance is about protecting a financial risk and there’s no need to have a cash value, as that adds significant costs to the premium.
Typically, you’ll need to provide your personal and contact details, and fill out a health questionnaire. To speed up the application, keep this information handy and answer your insurer’s questions as quickly as possible.
You can expect to be asked for the following information:
You might also need to provide these documents:
Most policies require a medical exam, which helps the insurer get a complete picture of your health. It’s similar to a basic physical, and your insurer pays for it. They’ll send a medical professional to your home or office at a time that’s convenient for you.
During the exam, the technician will record your height, weight, blood pressure and cholesterol, and take a blood and urine sample. They may also ask you about your personal and family medical history.
If you’d prefer to skip the medical exam, many insurers offer no-exam policies, though they’re significantly more expensive.
After you’ve completed the health questionnaire and medical exam, an underwriter will assess your application. They’ll cross-check the information you provided to determine your risk and how much you’ll pay for your coverage. This process can take anywhere from a few business days to eight weeks. And it could take longer if the underwriter discovers any red flags or missing information.
Once the underwriter approves your application, they’ll send you the policy documents for review. Double-check all the details, including the premium, coverage and riders. If you’re happy with the policy, sign the documents and authorize a method of payment for your premiums.
You can also decide whether you’d like to pay your premium monthly or annually.
Each insurer has its own underwriting process. As such, some put more weight on certain evaluation factors over others. To determine your premium, your insurer will assess the following:
There are various ways to buy life insurance, including through agents and brokers and directly from insurers. But before you commit to coverage, do the math to work out how much life insurance you need.
Then, compare life insurance companies to find the best possible policy and premium.
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Can I get term life insurance of 250,000 or 300,000 coverage vs whole life.
Hello Joyce,
Thank you for your comment.
Whole life insurance premiums are much higher due to its coverage lasts for a lifetime while the term life insurance provides coverage for a certain time period. Generally, when you compare the two, whole life insurance is expensive.
Learn more about the differences between term and whole life insurance. I hope this helps.
Regards,
Jhezelyn