Overview
Overwhelmed with life insurance shopping? You’re not alone. It’s easy to get confused with different policy types, death benefits, and insurance companies. You might have questions like, “How much life insurance do I need?” and “Do I need to take a medical exam?” In this guide, we’ll outline the basic steps you should follow to purchase the best life insurance policy for your family’s needs.
1. Choose the Type of Policy You Want
Before you can start getting life insurance quotes, it’s important to decide what type of life insurance policy is best for your needs. There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance provides coverage for a certain period, often between 10 and 30 years. If you outlive the term, your coverage expires, and your beneficiaries don’t receive any benefits.
Permanent life insurance provides coverage for your lifetime. Your beneficiaries will automatically receive the death benefit whenever you pass away. Most permanent life insurance policies also build cash value, which can be borrowed or withdrawn while you’re living.
The most common type of permanent life insurance is whole life insurance, but there are other types, too. Universal life insurance, for example, is a permanent life insurance policy that has flexible premiums and death benefits.
Term life insurance tends to be the cheapest option, especially if you purchase coverage when you’re young. Because permanent life insurance provides lifetime protection and cash value, it tends to have higher premiums.
2. Research Insurance Companies
There are dozens of life insurance companies on the market, and each one differs in terms of policy types, riders, customer service, policy management, claim handling, and cost. It’s a good idea to compare a few life insurance companies to find one that has what you’re looking for.
Some sources that can help you compare insurers are the J.D. Power 2024 Individual Life Insurance Study, which ranks the largest insurers based on customer satisfaction. You can also check an insurer’s financial stability score from AM Best.
Another great resource is the National Association of Insurance Commissioners (NAIC) Complaint Index. Companies with a complaint index below 1.0 receive fewer complaints than expected for its size. If the insurer’s index is over 1.0, it means it has more complaints than expected.
3. Consider Your Coverage Needs
Everyone has different life insurance coverage needs. Before you move on with the purchase process, now is a good time to think about what death benefit is needed to support your loved ones if you were to pass away.
Here’s a basic way to calculate your life insurance coverage needs:
Add up your financial obligations, like your mortgage balance, future education costs, and other debt. Then, multiply your salary by 10, and add the two figures together.
Take the total, and subtract the value of your liquid assets, like money in a college fund and existing life insurance policies.
The number left over is roughly the amount of life insurance you’ll need to support your family members for 10 years.
If you want to avoid the math, you can also find online life insurance calculators that will estimate your coverage needs based on information you submit. And if you want more help, you can always speak with a licensed life insurance agent.
4. Compare Quotes
The cost of life insurance depends on lots of factors, like your policy type, insurance company, coverage limit, age, and health. Certain lifestyle factors, like your tobacco use, hobbies, and occupation, can also impact your premium.
Because life insurance rates can vary so much, it’s recommended to get personalized quotes from a few different insurance companies. Many life insurance carriers offer online quotes for term life insurance, but if you’re considering a permanent policy, you might need to contact an agent to get a quote.
5. Submit an Application
Once you’ve found the best life insurance company based on your coverage needs and budget, it’s time to submit an application.
A typical life insurance application will ask for basic personal details, as well as your medical history, family medical history, and lifestyle. Some applications ask questions about your financial history (like past bankruptcies) and current income. You could also be asked about your criminal history.
Oftentimes, life insurance applications will ask for your Social Security number or driver’s license number, which is how the insurance company will verify the information you provide. Make sure to have those documents handy when you sit down to apply.
6. Complete a Medical Exam
Many life insurance policies require applicants to take a medical exam. You might also have a phone interview with a representative from the insurance company.
The medical exam is performed by a doctor from the life insurance company to validate the information you provided on the application. It usually involves taking basic vitals, like your height, weight, and blood pressure. Some insurers also require a urine and blood test.
The doctor will review your current and past medical history, medications, surgical history, and other details. This is why it’s important to answer truthfully on your application. If you don’t, it will likely be uncovered during the medical exam, and could jeopardize your eligibility for coverage.
7. Get Approved and Purchase Your Policy
Once you complete the medical exam, an underwriter from the insurance company will review the results and your application. Depending on the insurer, this can take anywhere from a few days to a few weeks.
The insurance company will let you know if you’re approved, and then, you can purchase the policy. Most life insurance policies take effect once you’ve paid the first premium. Like other types of insurance, life insurance premiums can either be paid annually or monthly. You might earn a small discount if you pay in full.
The Point
If you have loved ones that rely on your income, life insurance can be a good investment. Despite common belief, you don’t have to be close to retirement to get life insurance. Many single people and young families are great candidates, especially if you want to lock in a more affordable premium.
The process of purchasing life insurance can seem complicated, but it doesn’t have to be. Just make sure to do your due diligence first. Take some time to think about the best policy type and coverage limit for your situation, then compare insurers and get quotes. Once you purchase a policy, review your coverage annually to make sure it’s still meeting your needs.
by your friends at The Daily Navigator
