Key Takeaways
- Take note of your financial situation and find out how much life insurance you need by first asking yourself a few questions.
- Choose the right plan for your goals by understanding the different benefits of term, whole and universal life insurance policies — along with different riders.
- Consider the different cost, coverage and customer service advantages of buying from either an insurance company, online, an agent or a broker.
- Compare quotes and coverage before deciding on any life insurance policy.
Step 1: Determine How Much Life Insurance You Need
If you are considering life insurance, the first step is to determine how much life insurance you need. The answer may be none, a substantial amount or somewhere in between.
You’ll need to consider your individual financial situation, goals and needs — and you’ll need to ask yourself some questions.
Questions To Help You Decide How Much Life Insurance You Need
- Do you want to leave behind money for charity or a legacy?
- How long do you want to financially support your spouse and dependent children?
- How much money do your loved ones need to cover the mortgage, debt or other living expenses?
- How much money will your spouse need to cover other financial needs and obligations you both share?
- How will your family pay for daycare, tuition or retirement expenses without you?
- How will your family pay for your funeral, burial and other end-of-life expenses?
- What financial hardships will your family face without your income?
- Who depends on your income?
These questions can direct you to hard numbers to calculate how much life insurance you need.
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Step 2: Choose a Type of Life Insurance
Once you’ve settled on how much insurance you need, you will have to select the best type of life insurance for you.
There are two main types of life insurance — term life and permanent life. Each address different needs and goals.
- Term life insurance
- Term life policies last for a specific number of years — typically 10 to 30 years. You can choose the term that best suits your needs. This is usually the least expensive type of insurance. You pay premiums over the course of the term, and if you die within that period, the insurance company pays a death benefit to your beneficiaries. If you outlive the term, there’s no payout.
- Permanent life insurance
- Permanent life policies last your entire life. Once you die, the insurance company pays your beneficiaries a death benefit. Permanent life insurance policies typically include a cash value element as well. As you pay premiums into the policy, the value of the policy increases. This allows you to withdraw money — or borrow against its value — while you’re still alive.
Two common types of permanent life insurance are whole life and universal life.
Term Life vs. Permanent Life Insurance
- Whole life insurance
- Whole life insurance has the same premiums for as long as you keep the policy. You get a guaranteed return on the policy’s value and the death benefit stays the same. It’s typically more expensive than term life, but it builds cash value over time.
- Universal life insurance
- Universal life insurance has flexible premiums and death benefits. The cash value of a universal policy grows through tax-deferred interest earnings — meaning, you don’t have to pay taxes on the earnings until you withdraw money from the policy.Two common types of permanent life insurance are whole life and universal life.
Permanent Life Insurance: Whole Life vs. Universal Life
Talking with a licensed insurance professional can help you further narrow your choices on selecting a life insurance policy that works best for your needs.
Step 3: Research Life Insurance Features
Riders are add-ons that allow you to customize a basic life insurance policy to better meet your goals. These may raise the cost of your premiums.
- Accelerated death benefit rider
- An accelerated death benefit rider allows you to use your death benefit before you die to pay for care and treatment if you are diagnosed with a terminal condition.
- Accidental death benefit rider
- An accidental death benefit rider typically pays your beneficiaries twice the death benefit of the policy if you die from injuries sustained in an accident. It is sometimes referred to as double indemnity.
- Children’s term rider
- A children’s term rider allows you to add your children to the life insurance policy. The insurance company will pay a death benefit to the policyholder if the child dies before an age specified in the rider.
- Waiver of premium rider
- A waiver of premium rider will protect your coverage if you become disabled through an accident or medical condition and are unable to pay your premium.
Common Life Insurance Riders
Insurers may have eligibility requirements you have to meet for riders. You’ll need to talk to your designated insurance professional to understand the restrictions and coverage on any rider for each specific policy.
Supplemental Coverage
Supplemental life insurance coverage is additional coverage you can typically buy through your employer or certain organizations — such as your union.
This may be an economical way to provide your family with extra life insurance coverage while you are working. Supplemental life insurance typically costs less than individual life insurance policies.
But unlike employer-based health insurance — which you can extend through COBRA when you leave your job — you can’t extend supplemental life coverage after you quit, retire or are laid off.
Step 4: Explore Your Buying Options
There are several options for buying life insurance — direct from an insurance company, through an agent, through a broker or from an online-only insurer.
Choosing the right one depends on the type of policies — and the customer experience — you want.
Buying Directly From a Life Insurance Company
Buying a policy directly from a life insurance company is usually the fastest way to get coverage. It cuts out the back and forth between you, a middleman and the company.
It not only increases your convenience, but it may be cheaper than going through an agent. Plus, you may have more control over the number of companies you want to compare.
However, you won’t have the professional help of understanding the insurance buying process. This could mean you could miss out on the best coverage for your needs and goals.
Buying From a Life Insurance Agent
It’s important to understand that there are two types of insurance agents — captive agents and independent agents. Both types are licensed to sell insurance, but they represent different interests.
Captive agents work for one insurance company and only offer policies from that company. Typically, they only offer products from another company if their company doesn’t offer a particular type of policy.
Independent agents sell products from several different insurance companies. But they only sell policies from companies they have contracts with.
It’s important to remember that agents represent companies, not customers. While they may offer you choices from the companies they represent, they may not offer you the best coverage for your needs.
Buying From a Life Insurance Broker
Insurance brokers represent customers rather than companies.
Brokers work independently and do not represent or have contracts with any insurance companies. They act as an intermediary between you and the insurance companies.
A broker will typically work with several different insurance companies, searching for the best policy available for what a particular customer wants or needs. You may have to pay a fee, but you’ll likely recoup it through savings on your policy in a short time.
Buying Life Insurance Online
Buying life insurance online typically works best if you are buying a term life insurance policy.
You can typically purchase a plan from a company online. You fill out an application, compare quotes, choose the policy you want and pay on the spot.
Some companies offer “instant life insurance” — same-day application and approval. These don’t require medical exams for a lot of the people who apply.
But you may pay for the convenience with higher premiums. Since the insurer isn’t getting a clear picture of your health and lifestyle, it can charge more to cover its risk.
Step 5: Request Multiple Quotes
Once you’ve narrowed down your options, you’re ready to shop for the best price. Ask for quotes from each insurance company.
You typically won’t find the price of a life insurance policy on the company’s website — but they usually have a “quote generator.” If not, get in touch with an agent or broker.
You’ll have to provide personal information — age, address, gender — as well as medical information, whether you smoke and other lifestyle information. All these factors affect how much you pay for life insurance.
Compare life insurance quotes and the coverage you’re getting for each. Consider the cost of any riders you want and make sure you’re getting your ideal amount of coverage at a price you can afford.
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What To Expect After Applying for Life Insurance
If you’re ready to buy life insurance, you must still apply. And there’s more to expect after the application.
Information You’ll Have To Provide on Your Life Insurance Application
- Age
- Basic health and medical information (height, weight, medical conditions, medications you take)
- Birthdate
- Driver’s license
- Gender
- Marital status
- Occupation
- Salary, net worth and other financial information
- Social Security number
- Use of tobacco products
- Information on your beneficiary or beneficiaries — name, birth date, Social Security number, addresses, etc.
Medical Exam
The insurance company may require you to undergo a medical exam before selling you a life insurance policy. It largely depends on the type of insurance policy and amount of coverage you choose.
The insurance company may require the exam to be carried out by a specific doctor rather than your own physician.
What To Expect in a Life Insurance Medical Exam
- List all medical conditions, dates of diagnoses, treatments and outcomes
- Provide blood and urine sample
- Provide the names and addresses of all doctors you’ve visited in the past five years
- Provide the names and dosages of all medications for current and past conditions
- Pulse and blood pressure measured
- Test for blood sugar
- Test for cholesterol
- Tests for nicotine and drug use
- Treadmill stress test for heart health — in some cases
- Electrocardiogram (EKG) heart test — if over a certain age
- Cognitive tests — if over a certain age
- X-rays — in some cases
Most life insurance medical exams can be completed in as little as 15 to 45 minutes.
Frequently Asked Questions About Getting Life Insurance
Life insurance raises a lot of questions. Here are answers to some of the most frequently asked ones about buying life insurance.
Financial experts estimate you need six to 10 times your annual income in life insurance coverage. But there are several different ways to measure your needs. Some advisors say you should add an extra $100,000 on top of that for each child you have — to cover tuition and college expenses. You should consider covering all costs that your loved ones will face without your income, the amount of debt you would leave them, housing or mortgage payments and education costs to come up with the right amount of coverage in your particular situation.
Yes. There are no limits on how many life insurance policies you can purchase. However, companies may consider the total amount of coverage you have when you purchase a policy from them. This may affect how much you pay for a new policy. One of the most common examples of owning multiple life insurance policies are people who purchase an individual life policy through an insurer and buy supplemental life insurance through their employer, union or other organization.
Whether life insurance is worth its cost depends on your individual situation — your finances, amount of coverage you need, how long you’ll need it. You also must consider the type of policy and the amount of coverage it provides to determine if life insurance is worth it for your needs and goals.
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