How to buy life insurance in 8 steps
Do you want to buy life insurance but don't know where to begin? You are not alone; purchasing life insurance is very different from purchasing renters or auto insurance, and it is generally a much longer process. Fortunately, purchasing life insurance does not have to be complicated. The editorial team at StrongInsurance put together a step-by-step guide for purchasing a life insurance policy. We've also included some pointers for determining the appropriate level of coverage and obtaining the lowest possible premium.
How to buy a life insurance policy
If you have never purchased life insurance before, it may appear complicated. Life insurance policies, unlike home or auto insurance, come in a variety of forms. Each has potential advantages and disadvantages, as well as different price tags.
Although some life insurance policies can be purchased online, it is more common to purchase life insurance through an agent. Even if you can start a life insurance quote online, you'll almost always need to speak with an agent to complete the transaction. Furthermore, some aspects of the life insurance purchasing process, such as a medical exam, must be completed in person. Although not all policies require a medical exam, you will almost certainly be required to answer health questions on the application.
If you are looking for life insurance, here are some steps you can take to find the right policy for you.
1. Decide how much coverage you need
The first step in obtaining life insurance is determining how much coverage is appropriate for you. Based on your current lifestyle and financial situation, you should probably consider purchasing enough coverage to support your financial dependents for several years after your death.
The appropriate coverage limit for you will be determined by your reason for purchasing a life insurance policy. If you want coverage to provide financial security while you pay down a mortgage, for example, you may only need enough coverage to pay off the loan balance. A higher death benefit is probably required if you want coverage to replace your lost income for your loved ones for many years. Your reason for selecting a certain amount of coverage may also influence whether you purchase term life insurance or permanent life insurance, which we'll go over in greater detail in the following step.
Although there are numerous methods for calculating a potential coverage limit, one popular method is the DIME formula, which considers 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 schooling expenses. You can also get help from an online coverage calculator.
2. Pick a life insurance policy type
Life insurance comes in two varieties: term and permanent. Whole life insurance and universal life insurance are the two main types of permanent insurance. Term life insurance is typically less expensive and provides fewer benefits, whereas permanent life insurance is generally more expensive and provides more benefits. Here's a breakdown of what these policies cover and how they work:
- Term life insurance: Term life insurance is the most affordable type of life insurance when you are young. It provides coverage for a set period of time, usually between 10 and 30 years. If you die during the term, your beneficiaries will be paid by the insurance company. Unless the policy is renewable or convertible, the benefits end when the term expires.
- Whole life insurance: Whole life insurance is a type of permanent life insurance that provides lifetime protection if 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: Another type of permanent coverage is universal life. It also builds cash value, but the policy is adaptable, allowing you to adjust the death benefit and premium to meet your changing needs. Variable universal life insurance and indexed universal life insurance are two types of universal life insurance.
Before purchasing life insurance, you should conduct additional research to determine which option will best meet your needs.
3. Research different life insurance carriers
Following that, you should look for a few life insurance companies that interest you. Remember that no two businesses are alike. When selecting a life insurance company, browse the website and consider the policy options. The best life insurance company for you may provide a combination of coverage options that meet your insurance requirements as well as a positive customer service experience.
Reviewing J.D. Power studies for life insurance can give you an idea of a company's level of customer service. Examine a company's financial strength using AM Best, S&P, and Moody's ratings. You should also research and compare various life insurance riders, which are add-on coverage options that can provide you with a broader range of protection.
4. Request and compare life insurance quotes
After you've narrowed down your options, you can request quotes from each company. Because rates are highly dependent on your personal and health metrics, most companies do not include premium prices on their websites. Obtaining quotes may assist you in determining which provider can provide you with the most affordable rate. However, because life insurance rates do not differ as much between companies as home or auto insurance rates, shopping for life insurance is typically more about finding the company that offers the right product, riders, financial stability, and level of service for your needs.
The majority of major life insurance companies have an online quote generator that allows you to get an instant rate quote right from their website, but it isn't always available for all types of life insurance. If not, contact a real estate agent.
When you request a quote, you will usually be asked for some personal information, such as your age, address, and gender. You will also most likely be required to submit basic medical history information. This typically includes details about your lifestyle, smoking history, previous surgeries, and medications you are currently taking. The information provided will then be used by the insurance company to calculate your life insurance rate, though the quoted premium may change after your medical exam, if one is required.
5. Fill out the application
After determining which provider best meets your requirements, the next step is to complete an application. Basic personal information, as well as your Social Security number and driver's license number, will be required. You may also be required to submit an Attending Physician Statement (APS), which assists the insurance company in verifying your medical history. Some life insurance applications can be completed online, and the process is usually quick. You should, however, be prepared and have your medical information on hand, including a medication list and information about any chronic or pre-existing conditions.
6. Prepare for your phone interview
Following the submission of an application, the insurance company may request a follow-up phone interview. The interview is mostly used to confirm the information you provided on your application, but some additional questions may be asked. For example, the interviewer may be interested in learning more about your lifestyle and hobbies, financial health, income, and any other life insurance policies you have. If an interview is required, it will most likely be scheduled shortly after you submit your physical application.
7. Schedule a life insurance medical exam
Many life insurance companies and policy types require applicants to undergo a physical examination before being approved for coverage. The life insurance medical exam is similar to a regular doctor's appointment, but the medical examiner from the insurance company may be able to come to your home or office to see you. In general, they will take your vitals, such as weight and blood pressure, and draw blood. The exam usually lasts about 30 minutes and can be scheduled during your phone interview.
A medical exam is not required for all life insurance policies. If you meet certain criteria, you may be able to obtain coverage without taking an in-person exam. While this can speed up the approval process, no-medical-exam policies are usually more expensive due to the insurance company's increased risk.
8. Wait for approval
Your job is finished once the application process is completed. The information gathered from your application, phone interview, and medical exam will be used by the insurance company's underwriter to determine if you are eligible for coverage and, if so, what your premium will be. Because there is so much data to review, the approval process could take several weeks.
If you are approved and satisfied with the premium quoted, you will be sent the policy documents to sign and approve. While this process has traditionally been done with a physical copy, technology now allows this paperwork to be completed with a digital signature. You will also choose whether to pay your premium monthly or annually. After signing the policy documents, you may be asked to mail a physical copy to your insurance company.