- Written by Lindsey Crossmier
Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.Read More
- Edited ByLamia Chowdhury
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.Read More
- Reviewed ByEric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.Read More
- Published: October 26, 2020
- Updated: July 6, 2023
- 8 min read time
- This page features 11 Cited Research Articles
Life insurance can be a confusing topic, which is partially why many Americans have difficulty purchasing a policy. According to the 2022 Insurance Barometer Study, about 42% of participants reported having little to no knowledge about life insurance, and 80% severely overestimated the cost of a life insurance policy. There are roughly 106 million adults who lack adequate life insurance coverage.
With many overwhelmed by the complexities of life insurance, it may be hard to determine whether life insurance is worth it.
RetireGuide broke down the process of buying a life insurance policy into seven steps.7 Steps To Purchasing Life Insurance
- Assess your needs.
- Determine the type of policy.
- Shop around for quotes.
- Review the policy details.
- Apply for coverage.
- Wait for approval.
- Pay your premiums.
It’s important to understand the details of each step, so you can confidently purchase the policy that meets your specific needs.
1. Assess Your Needs
You may start to assess your needs for life insurance after a major life milestone, such as having a child, becoming a business owner or nearing retirement. You’ll need to account for potential future costs to determine the right level of coverage for your policy.
“First, determine how much coverage you need based on your individual life situation.” Linda Chavez, Founder & CEO of Seniors Life Insurance Finder told RetireGuide. There are five main factors to consider that go hand in hand with your needs: your age, health, income, debts and dependents.5 Factors To Consider When Assessing Your Needs
- The older you are, the more costly your policy will be. If you’re on the fence about buying life insurance, just know the sooner you purchase, the more affordable your premiums will be.
- If your health is in poor condition, or you smoke, the cost of your policy is likely to increase. If your health or lifestyle is a concern, try to get a policy that doesn’t require a medical exam. However, this type is typically more expensive.
- According to CNN, the rule of thumb is to multiply your income by 10 to 20 and make sure your policy covers this amount. For example, if your salary is $60,000, you should consider a life insurance policy with at least $600,000 for the death benefit. However, this isn’t a concrete rule. Speak to a financial advisor to determine if you need more — or less — coverage.
- If you have any outstanding debt or mortgage payments, factor it into the death benefit amount.
- Assess future costs of your dependents. If you’re planning to pay for their college tuition or cover wedding costs, this should also be accounted for in the death benefit.
Life insurance is a vital tool for everyone who is starting their financial plan, according to the Insurance Information Institute. Assessing your specific needs allows you to enjoy the benefits of life insurance and avoid accidentally spending thousands on a policy that doesn’t suit you.
2. Determine the Type of Policy
There are two main life insurance policy types — term and permanent.
Term policies offer temporary coverage, typically in term lengths of 10 to 30 years. You have set premiums for the set term, and this type isn’t usually offered to those over 70 years old. Term premiums are also less expensive than permanent life insurance premiums, according to the Texas Department of Insurance.
Permanent policies, on the other hand, give you lifelong coverage with a cash value component that you can tap into while you’re alive. The cash value component can benefit those who consider using their life insurance policy as an investment.
There are two main types of permanent life insurance — whole life and universal life.
With a whole life insurance policy, your premiums and death benefit amount are fixed. But with a universal life insurance policy, your premiums and death benefit are flexible.
If you’re a high-risk individual or over 65 years old and have worries about your application being accepted, you could consider getting a guaranteed whole life policy. This type is typically more expensive for less coverage, but you’re guaranteed approval.3 Types of Life Insurance Policies
Policy Type Premium Cost Coverage Flexibility Options Term Affordable Temporary No, your premiums and death benefit amount are fixed. Whole Costly Lifelong No, your premiums and death benefit amount are fixed. Universal Typically Most Expensive Lifelong Yes, your premiums and death benefit amount are flexible.
3. Shop Around for Quotes
“Make sure to shop around and compare policies from different providers to find the best one that fits your needs and budget,” Chavez told RetireGuide. “Consider getting an independent life insurance agent to help guide you through the process. With their expertise and knowledge, they can make sure you find the right policy for you.”
You can get quotes for the same exact policy and coverage amount, and still get different pricing from different providers. Comparing quotes can help you from being overcharged. Compare three different quotes at minimum to confirm you’re getting the best price.Quotes for a 10-Year Term Policy with $250,000 Coverage
Life Insurance Provider Monthly Quote Progressive $29.36 State Farm $31.97 TransAmerica $19.34
*Quotes were calculated for a healthy 50-year-old woman looking for coverage
You can typically get term policy quotes online, but you may be required to speak to an agent if you’re looking for permanent life insurance quotes.
No matter how good the quote is, confirm that the agent or company is licensed to sell life insurance. You should also check the company’s financial rating and complaint history for credibility.
Popular credit rating agencies include Moody’s, Fitch Ratings and Standard & Poor’s. You can check a company’s complaint history on the Better Business Bureau’s website.Advertisement
4. Review the Policy Details
Once you’ve selected a life insurance policy, it’s time to review the details carefully. Make certain the coverage fits your needs, the premiums are within your budget, you’re aware of potential fees, and that you understand any restrictions or exclusions.
This could be a good time to see if you want to add any riders to your life insurance policy. Life Insurance riders are additional benefits for your policy. While some riders are free, most typically increase your premium costs.
Dennis Shirshikov, a finance, economics and accounting professor at the City University of New York recommended several popular riders.
“There are several life insurance riders that can be valuable, depending on your needs. One popular rider is the waiver of premium rider, which covers your premium payments if you become disabled and unable to work,” Shirshikov told RetireGuide.
“Another useful rider is the accelerated death benefit rider, which allows you to access a portion of your death benefit if you’re diagnosed with a terminal illness.”
5. Apply for Coverage
Apply for coverage by filling out a physical application or an online application. If you’re laddering multiple life insurance policies, you should consider getting assistance from a life insurance agent for a simpler process.
Whether you’re purchasing one policy or multiple, you’ll need to have your personal information on hand at the time of applying.Information Required To Apply for Life Insurance Coverage
- Driver’s license
- Social Security number
- Financial information
- Health and medical information
- Nicotine and tobacco usage information
- Occupation and hobbies
After applying for life insurance coverage, you may need to undergo a medical exam as part of the underwriting process.
6. Wait for Approval
The wait time for your life insurance application can vary between several hours to 60 days, depending on whether you have traditional underwriting or accelerated underwriting. The complexity of your policy can also influence these factors.
If your policy requires the traditional underwriting process, which includes a medical exam, and a blood and urine test, then approval typically takes 45 to 60 days.
Some life insurance policies, usually term policies, offer accelerated underwriting, which don’t require a medical exam. Instead, you’ll just need to answer a few health-related questions.
Make sure you answer honestly to avoid life insurance fraud. According to the National Association of Insurance Commissioners, accelerated underwriting can cut down approval wait times to several hours.
7. Pay Premiums
While it’s common to pay premiums monthly, some issuers offer options to pay quarterly, annually or semiannually. Choose a payment schedule that you can stick to and aligns with your budget.
If you don’t pay your premiums on time, your policy could lapse or be canceled. And if you were to pass away while your life insurance policy has lapsed, your beneficiaries typically won’t receive the death benefit.Pro TipOnce your policy is active, notify your beneficiaries about your life insurance policy to avoid your benefits going unclaimed. Let them know the name of the issuing company and where to find the paper copy of a policy.
Buying Life Insurance FAQsAt what age should you consider purchasing life insurance, and how much coverage do you need?To avoid high premiums, purchase a life insurance policy as young as possible. Most insurers start charging costly premiums once you turn 50, so purchasing a policy before then would be in your best interest. As for the coverage amount, make sure to consider your salary, debt, burial costs and future costs for any dependents.Can you adjust your life insurance policy as your needs and circumstances change over time?You can adjust a universal life insurance policy’s premium and death benefit amounts over time. In some cases, you also have the option to convert a term policy into a permanent policy. Whole life insurance policies aren’t typically adjustable.Are there any restrictions or exclusions that you should be aware of when purchasing life insurance?If you have poor health or are above a certain age, you could be denied when trying to purchase life insurance coverage.Last Modified: July 6, 2023Advertisement
11 Cited Research Articles
- Texas Department of Insurance. (2023, May 2). Life Insurance Guide. Retrieved from https://www.tdi.texas.gov/pubs/consumer/cb018.html
- Johnson, H. (2023, March 1). How Much Life Insurance Do You Need? Retrieved from https://www.cnn.com/cnn-underscored/money/how-much-life-insurance-do-i-need
- Cain, S. (2023, March 22). What Is Universal Life Insurance? Retrieved from https://www.usnews.com/insurance/life-insurance/universal-life-insurance
- AIG Direct. (2023). Payment Plans. Retrieved from https://www.aigdirect.com/life-insurance-101/life-insurance-application-and-medical-exam/payment-plans
- Progressive. (2023). What Is Instant Life Insurance. Retrieved from https://www.progressive.com/answers/instant-life-insurance/
- Progressive. (2023). How Much Does Life Insurance Cost? Retrieved from https://www.progressive.com/answers/how-much-is-life-insurance/
- TransAmerica. (2023). Get a Quote. Retrieved from https://www.transamerica.com/lifepolicyexplorer/get-quote
- State Farm. (2023). Life Insurance for All That Matters to You. Retrieved from https://www.statefarm.com/insurance/life
- National Association of Insurance Commissioners. (2022, June 14). Accelerated Underwriting. Retrieved from https://content.naic.org/cipr-topics/accelerated-underwriting
- Life Happens. (2022, April). 2022 Insurance Barometer Study. Retrieved from https://lifehappens.org/research/owning-life-insurance-provides-a-clear-path-to-financial-security/
- Insurance Information Institute. (n.d.). 8 Smart Steps for Buying Life Insurance. Retrieved from https://www.iii.org/article/8-smart-steps-for-buying-life-insurance
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