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How to buy life insurance
Don't pay for more coverage than you need.
If you have loved ones who depend on you, a life insurance policy might be a key part of your financial plan. It can provide peace of mind that your family will be taken care of financially when you die. But with so many options to choose from, purchasing a policy can be confusing.
By breaking up the process into a few steps, you can take buying life insurance from overwhelming to achievable and get the protection your family needs.
9 steps to purchasing a life insurance policy
To find the right policy for you and your family, follow these steps:
What's in this guide?
Choose a path to purchasing a policy
There are a few ways to go about buying a policy independently:
- Go straight to the insurer. This is the most independent and straightforward way to buy coverage – but you’ll need to do some research on your own. This method cuts out the middleman and can potentially lead to discounts, especially with bigger insurers. They 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 insurers 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.
- Speak to an agent. Insurance agents usually represent one or more companies. 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.
Decide on a policy type
Most life insurance policies fall into one of two categories: term or permanent.
- Term life insurance 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.
- Permanent life insurance Performance 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.
Because this type of coverage is temporary, term life is less expensive than a permanent policy.
These are the most common policy types:
- Whole life insurance. The most basic permanent plan, whole life insurance earns a fixed rate of return set by your insurer.
- Universal life insurance. The cash value of this policy is tied to a stock index, such as the S&P 500, and earns interest based on the current market rate.
- Variable life insurance. With variable life, the cash value is invested in a portfolio of stocks, bonds and mutual funds of your choice.
- Variable universal life insurance. This hybrid policy offers flexible premiums and the ability to invest your cash value in investments that match your risk tolerance.
Determine how much coverage you need
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:
- Income. The general rule of thumb is to buy a policy that would replace your income and cover your family’s cost of living for five to 10 years. An easy way to do this is to multiply your salary by five or 10.
- Assets. Over time, you may have acquired assets such as a house, car, savings account or 401(k). Your life insurance policy should protect these assets, so total them up and add that amount to your coverage.
- Debt. Your debt doesn’t die with you. To prevent that burden from landing on your beneficiaries, consider any outstanding debt — such as a mortgage, student loans or credit cards.
- Financial obligations. Add up all of your other expenses now and in the future — like childcare or college tuition.
Research life insurance companies
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:
- Policy features
- Available riders
- Minimum and maximum coverage amounts
- Financial strength. An insurers’ financial strength points to its ability to pay claims. Look for insurers with an A.M. Best rating of A or higher.
- Cost of coverage
- Customer reviews
- Claims process
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.
Select a policy that suits your needs and budget
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. These are some of the most popular ones:
- Accelerated death benefit rider. If you’re diagnosed with a terminal illness, this rider pays out a portion of the death benefit.
- Critical illness rider. If you’re diagnosed with a critical illness, this rider pays out a lump sum. Heart disease, cancer, stroke and kidney failure are among the common covered illnesses.
- Disability income rider. If you become totally disabled and can no longer work, this rider will pay a monthly cash benefit for a specific period of time.
- Term conversion rider. Gives you the option to convert your term life insurance policy to a permanent policy within a certain time frame.
- Waiver of premium rider. Waives your premiums if you become unemployed or fully disabled and can’t work.
- Child term rider. Pays out a death benefit if your child dies, and usually expires when your child gets married or turns 25.
- Return of premium (ROP) rider. Reimburses you for any premiums paid if you outlive your term life policy.
Apply for coverage
Typically, you’ll need to provide your personal and contact details, and fill out a health questionnaire. You can expect to be asked for the following information:
- Name
- Age
- Gender
- Height and weight
- Phone number, address and email address
- Employment and income
- Lifestyle and hobbies
- Smoking status
- Alcohol and drug use
You might also need to provide these documents:
- Proof of identity (e.g. driver’s license, passport or state-issued ID)
- Proof of income (e.g. a pay stub or recent tax return)
- Proof of residency (e.g. a copy of your lease or utility bill)
To speed up the application, keep this information handy and answer your insurer’s questions as quickly as possible.
Take the medical exam
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.
Wait for your application to be reviewed
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.
Sign off on your policy and send it back to the insurer
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.
Protect your loved ones
This life insurance broker combines technology and the human touch to match you with a policy tailored to your needs.
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Key life insurance terms
These are the common terms you might come across when you’re shopping for life insurance:
- Beneficiary. The person, people or organizations that will receive the proceeds from your life insurance policy when you die. You can nominate multiple beneficiaries, and allocate what percentage of the death benefit should go to each.
- Death benefit. The amount of money that will be paid out to your beneficiaries when you die. Depending on your provider and policy, the death benefit can be as low as $10,000 and as high as $10 million.
- Face value. Also called the “coverage amount,” this is the value of your policy. It’s directly linked to the death benefit. If you purchase a policy worth $250,000, your beneficiaries will receive $250,000 when you die.
- Premium. The fee you pay to keep your coverage in effect.
- Term. The period of time your policy is in force — like 10, 20 or 30 years.
Compare life insurance companies
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
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.
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