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How to buy life insurance and buy it wisely
Don't pay for more coverage than you need.
Balance the cost of a life insurance plan with your income, expenses and future family needs to make sure your family is financially stable after you die. Things like your age, lifestyle and health determine what you’ll pay for a policy.
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How to buy life insurance
If you’re ready to purchase a policy, there are a few ways to go about it:
- Go straight to the provider. This is the most independent and straightforward way to buy coverage – but you’ll need to do your research. Along with looking at policy features, riders and exclusions, confirm each company’s financial strength and customer reputation. Once you’ve compared carriers and picked a policy that best suits your needs, you can apply directly with the provider. This method has other benefits, too. Bigger insurers often sell multiple types of insurance, and offer discounts for combining life insurance with auto or home insurance.
- Shop online. Many companies now offer online quotes, which makes it easy to compare coverage and rates from a few providers at once. If you go down this route, don’t give out sensitive information – like your Social Security Number – until you actually apply for a policy. Reputable companies will provide quotes anonymously, or only ask for basic health and contact details.
- Speak to an agent. Insurance agents usually represent one or more providers. Think of them as a conduit between you and the insurance company. An agent can guide you in choosing the right policy for your needs and budget. They can also help you to fill out your application and gather documents.
- Work with a broker. While agents sell policies from specific companies, brokers work directly with the buyer – a.k.a you. An insurance broker will assess your unique needs and answer any questions you have. They’ll then use their knowledge and expertise to find you the best possible policy. Since brokers aren’t tied to a particular provider, they may be more objective.
- Get coverage through your employer. This is called ‘group insurance,’ and it’s typically offered as part of your workplace benefits. If you decide to opt in, you won’t be able to choose your provider, but you may be able to select a term or riders. You can either make an annual payment, or have the premiums deducted from your paycheck.
What should I expect when I apply for life insurance?
When you apply for coverage, you can expect to go through the following steps:
Application.
Typically, insurers ask for this information:
- Name
- Age
- Phone number
- Address
- Height
- Weight
- Verifiable income
- Employer
- Hobbies
- Smoking status
- Alcohol and substance use
Medical exam.
The insurance company will likely send out a medical representative to your home or office, rather than sending you to a clinic. The exam usually includes a blood and urine sample, blood pressure, questions about your and your family’s medical history.Some insurance companies have no-medical-exam policies, however you can expect to pay more for those.
Underwriting.
Your application and medical exam is reviewed by an underwriter. They determine your risk and how much you’ll pay for your coverage. This process can take only a few business days to as long as eight weeks. And it could take longer if they have any re-flags as to false claims or incorrect information.
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Which type of life insurance policy should I buy
When purchasing life insurance, consider the two types out there — term and permanent.
Term life insurance
Younger people in good health are typically more likely to be sold term life insurance. This type of insurance typically lasts for 10, 15, 20, 25 or 30 years. During the term, premiums may increase every few years on a set schedule.
Because the term ends, this type of policy is less expensive than a permanent policy. Once the term ends you could have an option to convert it to a permanent policy or reinstate another term.
Permanent life insurance
As the name implies, permanent life insurance lasts as long as you do — as long as you pay your premiums. This is where life insurance divides again, splitting into three major types.
- Whole life. As you pay your whole life premium, your account builds a cash value that you can withdraw, tax free. This is money that’s accumulated, so if you don’t use it by the time your death benefits, you can lose it.
- Universal life. A certain amount of flexibility is allotted with universal life policies. You may increase or decrease your coverage and change the amount and frequency of your premium payments throughout the length of the policy rather than keeping them static. Cash value is based on a variable rate that you may be able to borrow against or use to limit payments.
- Variable life. You’ll find that variable life has many similarities to universal life. You get an amount of flexibility with premiums and your benefit. The biggest difference is that you’re able to invest what would go into the cash account into securities, such as stocks, bonds and mutual funds.
Permanent life insurance guide
Expert Advice: Brittney Burgett
Marketing & Communications Director at Haven Life
- What to consider when you’re buying life insurance
First and foremost – think about the coverage you want. Specifically, the age-old question: should I get term life or whole life? Our perspective is that term life is an affordable and simple way to financially protect your loved ones. You have that coverage in place during the years you need it most – for example, until your baby is an adult and in college, or until your 30-year mortgage is paid off.
From there, figure out how much coverage you actually need. We have an online calculator where you can put info about yourself, your family and your income, and it will provide you with a recommendation for coverage.
After that, you should price compare! There’s nothing better than getting a great bargain, so you should shop around and get quotes from several insurance companies. Use an aggregator and make sure that you’re getting a good, competitive price. You don’t always have to go with the cheapest option, but just make sure it’s in the same ballpark.
Then, think about what kind of purchasing experience you want. Some people want to do their own research and apply online when they have the chance. Other people want the assistance of an agent along the way. Be sure that the purchasing experience of the insurance company you choose aligns with what you want and gets you the coverage you need.
- How to get the best coverage for you
I can’t stress enough that people should always price compare. Not only should you get the best price possible, but substantial price differences might indicate that you’re not getting the right product for you, or you’re paying for riders or benefits that are not the best fit. For example, convertibility will typically increase the cost of your policy. So, if you’re looking at the price differences of the two term policies, and one is $10 more a month, it could be because you have a rider on there that you don’t need. And you wouldn’t know that unless you price compared!
Unfortunately, there are many different types of term life insurance, which doesn’t make it easy to make a decision. But for most younger, healthier people, medically underwritten term life insurance is the best option. It’s a little more thorough because it asks more information about your health, and the price is tailored to you and only you.
It’s also important to ensure you have guaranteed level premiums – i.e. the price you pay lasts your entire term. Right now, I pay about $28/month for a 30-year, $500,000 policy, and in 29 years, it will still be $28 – even if I’m unhealthier or have had some kind of illness. That’s what makes term life insurance a great product.
Look up the ratings and reviews of the company you want to go with. These ratings are an indicator of a company’s financial strength and claims paying ability.
Finally, make sure you understand the product you’re purchasing before you buy it. For example, know and be okay with the fact that your term life policy won’t build cash value. And if convertibility is important to you, make sure your policy has that feature. That way, there will be no surprises after you’ve purchased coverage.
- How underwriters determine risk
I know the thought of someone determining your risk and medically underwriting you sounds intimidating. But don’t think about underwriting as a negative thing. It’s how the insurer gets a holistic look at your health so they can offer an accurate risk analysis and give you the best rate possible. Again, the more assumptions an insurer makes about you, the more you’re probably going to pay.
With a digitally-focused agency like Haven Life, the algorithms we use look at your health in a holistic way. So if you’re not at your ideal weight, that’s not an automatic price increase. Because if you have great cholesterol or an immaculate prescription history, we’ll take that into account, too.
What affects how much coverage I need?
One method to determine what you’ll need is DIME: Debt, income, mortgage and education.
- Debt. Any debt that’s still owed needs to be dealt with by your family. Outstanding auto and private student loans and credit card balances should be carefully considered when you’re choosing a coverage amount.
- Income. Consider your income when choosing a coverage amount. Some agents say to shoot for 15 times your annual income, while others recommend more than three times your income, plus any out standing debt. The goal is to supplement what you would have contributed to your family’s finances for that length of time.
- Mortgage. Similar to debts, you may want to include the amount left on your mortgage.
- Education. This one is specific to those who have children. The cost of going to college, or even to a private school, can be quite a burden. By adding it into your coverage amount, you can potentially help ease that weight.
Other factors to consider:
- End-of-life expenses. Though it may seem grim you’ll likely need to nail down your end-of-life plan or at least have be able to make a reasonable estimate. Curious types may even enjoy looking at potential green alternatives to traditional burial such as hydro cremation or burial pods.
- Inflation. The coverage you get now will likely not be worth the same in 30 years. Accounting for inflation may be especially important for those who are interested in policies without flexible coverage amounts.
- Local and federal taxes. Though estate taxes are usually only applied to large amounts, there are six states that assess an inheritance tax. Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania have inheritance taxes that vary based on which state you’re in. Exceptions do apply for some beneficiaries though, so you may want to consult with a tax adviser or an adviser who works in estate planning.
- Number of policies. You’re not restricted to buying just one policy. Opting to buy more than one means taking into consideration the total coverage you need and how you want to partition that amount.
Use our calculator to determine coverage
How do I compare life insurance companies?
- Policies offered. A good way to start filtering companies is to check if they have the type of policy and riders you’re looking for.
- Coverage options. How much you need is another good way to filter your options. Not all providers will offer $1 million in coverage, and those that do may not offer as low as $2,000.
- Cost of coverage. Consider what you can afford. Starting a life insurance plan that has premiums you can’t keep up with will likely just lead to a lapse in the policy.
- Financial strength. Many insurance companies are rated on their financial strength — their ability to pay out benefits. A.M. Best, Fitch, Moody’s and Standard & Poor’s are four insurance rating organizations and each has its own rating system.
- Customer ratings. The experiences of other consumers may shed light on certain aspects of the provider that would otherwise be difficult to assess without already being involved with them.
- Customer service availability. Applying for life insurance or settling a claim can be a lengthy and confusing process. Having helpful customer service can make all the difference.
- Claims process. The last thing anyone wants is for their family to jump through hoops to receive benefit. Take a look at a provider’s claims process and note what’s needed and who’s required to file it.
What affects my life insurance premiums?
Each insurance provider has its own underwriting process. As such, some put more weight on certain evaluation factors over others. Take a look at a few points that will be assessed:
- Age. How old you are plays possibly the biggest role in determining your premiums. The younger you are, the lower your premiums will typically be.
- Gender. Women typically end up with lower premiums than men, mostly due to women having a higher average life expectancy.
- Certain health indicators. When a medical exam or medical questions are involved, your weight, height, blood pressure and any history of major diseases or conditions help determine your premiums.
- Family health history. Major health conditions and diseases in your immediate family are likely taken into account. Cancer, cardiac arrest, kidney disease and stroke are among what may affect your premiums.
- Smoking. Frequency and the last time you smoked will likely be considered when determining how much you’ll pay in premium. If you are a smoker, you might want to read up on our life insurance for smokers guide
- Substance use. Alcohol use that has resulted in doctor-mandated rehabilitation and illegal substance abuse are likely to increase your premiums.
- High-risk occupations and hobbies. Certain occupations and hobbies are considered riskier than others. Being a lumberjack is objectively more dangerous than working in accounting. Likewise, skydiving will earn your application more scrutiny than needlepoint.
- Driving and criminal records. Several tickets within a short period of time, DUIs and arrests can contribute to what your policy costs.
Bottom line
To get the most out of your life insurance, talk over plans with your spouse, research companies thoroughly and compare life insurance providers to find the policy that best fits your needs.
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Frequently asked questions
Ask an Expert
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.
This page explains how these two differs. I hope this helps.
Regards,
Jhezelyn