How to Buy Life Insurance
Buying life insurance can be a complicated but important part of planning your and your family’s financial security. There are some basic steps in deciding if life insurance should be part of your retirement planning. You should decide if you need it and if so, choose the right type, research the companies selling it, get quotes, and prepare to meet the requirements of buying life insurance.
- Written by Terry Turner
Senior Financial Writer and Financial Wellness Facilitator
Terry Turner has more than 30 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).Read More
- Edited ByLee Williams
Senior Financial Editor
Lee Williams is a professional writer, editor and content strategist with 10 years of professional experience working for global and nationally recognized brands. He has contributed to Forbes, The Huffington Post, SUCCESS Magazine, AskMen.com, Electric Literature and The Wall Street Journal. His career also includes ghostwriting for Fortune 500 CEOs and published authors.Read More
- Financially Reviewed ByEric Estevez
Licensed Independent Insurance Broker
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: August 23, 2022
- 7 min read time
- This page features 9 Cited Research Articles
- Edited By
3 Ways to Buy a Life Insurance Policy
Buying life insurance requires you to do your research and weigh whether any of the different types of life insurance are right for you.
You should consider your age and health and what goal you want to accomplish by buying life insurance. Are you protecting your beneficiaries or saving for retirement?
Rules regulating life insurance vary from state to state, but there are generally three routes to buying insurance once you’ve made up your mind.
- Directly from an insurance company (online or in person)
- Through an independent insurance agency that sells policies from different companies
- Through an independent online broker that sells policies from different companies
Large insurance companies will focus on selling you one of their policies. Independent brokers or agents will provide you with a choice of different policies from different companies. These may give you a wider selection of policies that better fit your needs.
- Your first step is to decide if life insurance is right for you. If it is, you need to decide which type of life insurance policy — usually either permanent or term life — is best for your circumstances and how much insurance you need and can afford to pay in monthly premiums.
- You now have to make several choices. You need to choose which life insurance policy you want. You’ll also need to choose a company, agency or broker that sells it. You’ll also need to choose riders — extra options that add benefits or change the terms of the original policy.
- When you’re ready to buy, you can purchase your life insurance online or in person at a company, agency or brokerage office or website.
When You Should Buy Life Insurance
Ideally, you should buy life insurance when you’re young and healthy. This is when you are more likely to qualify for it and get the best bargain.
In 2021, a 25-year-old man could buy a $500,000, 20-year term life policy for less than $40 a month, according to Senior Market Sales, a full-service insurance marketing organization headquartered in Omaha, Nebraska. A 25-year-old woman seeking the same policy would pay $31 a month, on average.
Premiums can increase sharply as you age. Every year you wait before you turn 40 can add another eight to 10 percent to the cost of monthly premiums.
What Life Insurance Policy Is Right for You?
Some can provide financial security for your beneficiaries if you die. Others can be used as a way to save for your retirement or other important costs in your future.
- Term life insurance
- Term life insurance provides coverage for a specific period of time. It pays your beneficiary only if you die during that period of time — which is called the “term of the policy.”
- Permanent life insurance
- Permanent life insurance policies don’t expire like a term life policy does. They combine a death benefit along with the ability to build savings toward your retirement. They tend to come in two types — whole life and universal life insurance. Other types include variable life and variable-universal life insurance.
- Endowment life insurance
- Endowment life insurance is designed to pay you a benefit if you are still living after a specified number of years. If you die before that time, your beneficiary receives the policy’s proceeds. It is often sold as a college savings plan.
Is It Worth It to Buy Life Insurance?
Understanding how different life insurance types work and comparing them to your life needs and future plans can help you understand if life insurance is a good value for you.
You should look at your life circumstances and the return of the investment you’d make in a life insurance policy.
How to Shop Around for Life Insurance
Shopping for life insurance involves researching potential insurers and calculating your potential return.
There are several red flags you should be aware of. And you need to carefully compare policies, premiums, fees, potential returns and the history of policies and the companies that sell them.
- Look for a license
- Check with your state insurance commission or the National Association of Insurance Commissioners to make sure the agent or company is licensed to sell life insurance. If they are not licensed, the policy may not pay out to your beneficiary. Licensed companies belong to associations that will guarantee that you’ll be paid even if the seller goes out of business.
- Check the seller
- Contact your state insurance commission to find out what the company’s or agency’s financial rating looks like and if there are an unusual number of complaints filed against it.
- Compare prices
- Get quotes from several companies on policies that interest you. Rates can vary by company. You should also look for a low- or no-load policy which has low commissions and fees. Licensed financial planners who sell insurance often offer a low flat fee that may save you money.
- Compare policies
- Be sure the policies you compare offer the same or similar coverage. More expensive policies may actually give you more bang for your buck. Calculate monthly premiums compared to eventual payouts.
- Research past performance
- Sellers may use charts to show you potential cash value growth for a policy. Be sure to ask about how the policy has actually performed in the past. You may earn less than any projection.
- Look for illegal offers
- Agents are barred by law from offering you a discount on a loan or investment. If you think something is illegal, contact your state insurance commission.
What to Expect When Buying a Life Insurance Policy
Buying life insurance isn’t like most shopping experiences. You have to prove to the company, agent or broker that you’re worth selling to. This means you have to show the insurer that you are not a high-risk individual.
That means going through several steps before you are approved for life insurance. Each of these can take time and any of them may disqualify you from buying your first choice of life insurance policies.
- Filling out an application
- The application will include your basic information including your Social Security number. You’ll need to include a doctor’s statement about your medical history which will be used to calculate your death benefits.
- Phone interview
- After you send your application, the insurer may call you to confirm information on your application or to ask additional questions. The interviewer may want to know about your financial situation or if you participate in risky activities or hobbies such as skydiving or extreme sports.
- Medical exam
- You may need a physical exam before you can be approved for your policy. This typically 30 minute exam is usually done by the insurer’s medical examiner visiting your home or office. It involves taking your vitals, measuring your height, weight and blood pressure and drawing a blood sample.
- The insurer processes the information from the earlier steps to determine if you’re eligible for coverage and what your monthly premium will be. The process may take weeks. When it’s done, and if you’re approved, the insurer will send you documents to fill out, sign and return. You should make a copy and keep it for your records.
You may be required to pay a deposit before starting the application process. This may be put toward your first monthly premium if you’re approved.
If there isn’t a deposit, you’ll be required to make your first premium payment upon approval. The insurer still has the option to cancel your policy or hike your premium if your medical exam turns up some undisclosed health conditions.
9 Cited Research Articles
- Texas Department of Insurance. (2020, October 7). Life Insurance Guide. Retrieved from https://www.tdi.texas.gov/pubs/consumer/cb018.html
- USA.gov. (2020, August 11). Buying Insurance. Retrieved from https://www.usa.gov/buying-insurance
- Woleben, J. (2020, May 4). Aggregate U.S. Life Insurance Premiums Grew by 4.5% in 2019. Retrieved from https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/aggregate-us-life-insurance-premiums-grew-by-4-5-in-2019-58385238
- Knueven, L. (2020, February 25). If You’re Considering Buying Life Insurance, Now Might Be the Right Time to Do It. Retrieved from https://www.businessinsider.com/personal-finance/life-insurance-premium-increases-set-to-slow-2020
- California Department of Insurance. (2018, March). Life Insurance Guide. Retrieved from http://www.insurance.ca.gov/01-consumers/105-type/95-guides/07-life/life-ins-guide.cfm
- New York State Department of Financial Services. (n.d.). Life Insurance. Retrieved from https://www.dfs.ny.gov/consumers/life_insurance
- New York State Department of Financial Services. (n.d.). Types of Policies. Retrieved from https://www.dfs.ny.gov/consumers/life_insurance/types_of_policies
- Hawaii Department of Commerce and Consumer Affairs. Life Insurance Information. Retrieved from http://cca.hawaii.gov/ins/consumers/life/
- U.S. Securities and Exchange Commission. (n.d.). Variable Life Insurance. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-life