Thinking about buying a life insurance policy, but don’t know where to start? You’re not alone—purchasing life insurance is much different than buying renters or auto insurance, and it’s generally a longer process. Fortunately, buying life insurance does not have to be difficult or confusing. Bankrate’s editorial team put together a step-by-step guide for purchasing a life insurance policy. We’ve also provided some helpful tips for choosing the right amount of coverage and getting the most affordable premium.
How to buy a life insurance policy
Purchasing life insurance can seem hard if you have never done it before. Unlike home or auto insurance, there are several types of life insurance coverage. Each comes with perks and cons, and varying price tags.
Although certain life insurance policies can be acquired online, it’s more customary for life insurance policies to be purchased through an agent. Even if you can start a quote online, you’re typically forced to interact with an agent in order to conclude the transaction. In addition, there are some components of the life insurance buying procedure, including a medical exam, which must be conducted in-person.
If you are in the market for life insurance, these are the steps you may find helpful in acquiring a coverage that is suited for you.
- Decide how much coverage you need
The first step in buying life insurance is to figure out how much coverage is right for you. In general, you should generally consider getting enough coverage to maintain your financial dependents for several years after your death, given on your current lifestyle and financial condition.
Although there are many ways to calculate a potential coverage limit, one popular method is the DIME formula, which takes into account 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 expenses for schooling. You can also use an online coverage calculator to assist you out.
- Pick a life insurance policy type
There are two forms of life insurance coverage: term and permanent. While there are several types of permanent insurance, the ones we’ll focus on here include entire and universal. Term life insurance is usually less expensive with less benefits, whereas permanent life insurance is typically more expensive as it offers greater benefits. Here’s a closer look at what these policies cover and how they work:
Term life insurance: Term life insurance is often the lowest sort of life insurance while you are young. It provides coverage throughout a defined term length, usually between 10 and 30 years. Term life insurance is designed to give financial support to your specified dependents. For example, if you pass away during the term, your children or spouse will receive a settlement from the insurance company. Once the period is finished, the benefits disappear, unless the insurance is renewable or convertible.
Whole life insurance: Whole life is a type of permanent life insurance that provides lifetime protection in most circumstances, with fixed premiums and cash value. If you purchase insurance from a mutual company, the policy may also be eligible for dividends based on the business’s financial success. With some whole life policies, policyholders have to pay their premium until they die, and other policies only demand a payment for a specific number of years.
Universal life insurance: Universal life is another sort of everlasting coverage. It accumulates monetary value, where the money grows at a current market rate or fixed interest rate. There are numerous varieties of universal life insurance, including variable universal life insurance and indexed universal life insurance.
You may want to do extra study to figure out which choice will best match your needs.
- Research different life insurance carriers
Next, you will want to select a few life insurance firms that are intriguing to you. Remember that no two companies are the same. When choosing a life insurance provider, search the website and look at the coverage possibilities. The greatest life insurance company for you may offer a combination of low rates, policy options that meet your insurance needs and a positive customer service experience. You can obtain a sense of a company’s degree of customer service by studying J.D. Power research for life insurance. Check for a company’s financial strength by evaluating ratings from AM Best, S&P and Moody’s.
- Request numerous life insurance quotes
Once you have picked a handful of potential providers, request quotations from each organisation. Most firms do not publish the price of premiums on their website, so receiving estimates will help you evaluate which provider can give you the most cheap cost. Most major life insurance companies feature an online quote generator that allows you to acquire a quick rate estimate right from the website. If not, get in touch with an agent.
When you want to acquire a quote, you will normally be required to supply some personal information, like your age, residence and gender. Additionally, you will likely need to enter basic information regarding your medical history. Usually, you are asked about your lifestyle, smoking history, past surgeries and drugs you are taking. Generally, there is no need to submit official medical records to acquire a quote. The insurance company will then utilise the information provided to determine your life insurance rate.
- Fill out the application
After choosing the supplier that meets your needs, the following step is to fill out an application. You will be expected to submit basic personal information, as well as your Social Security number and driver’s licence number. Additionally, you might need to submit an Attending Physician Statement (APS), which helps the insurance company verify your medical history. The APS ensures you have the correct policy, and is used when calculating death benefits. Most life insurance applications may be filled out online, and it is usually a simple procedure.
- Prepare for your phone interview
After filing an application, the insurance company can need an additional phone interview. The interview is largely intended to confirm the information you supplied on the application, although there may be some additional questions answered. For example, the interviewer will want to know more about your lifestyle and activities, your financial health, your income and any other life insurance plans you have. The interview is normally quick and will be set immediately after submitting your physical application.
- Schedule a life insurance medical exam
Many life insurance companies require applicants to obtain a physical exam before they may be accepted for coverage. The life insurance medical exam is like a regular doctor appointment, but the insurance company’s medical examiner will visit your home or office to see you. They will take your vitals, like height, weight and blood pressure, and draw blood. The exam normally takes around 30 minutes, and you can arrange it during your phone interview.
However, not all life insurance policies require a medical exam. If you satisfy certain qualifications, you might be able to get approved for coverage without an in-person test. While this can accelerate the approval process, no-medical-exam policies are usually more expensive because it’s riskier for the insurance company.
If you are healthy enough to pass a medical exam and don’t mind waiting a few weeks for approval, it’s generally recommended to undergo a medical exam because your rate will probably be significantly lower.
- Wait for permission
When the application procedure is complete, your duty is done. The insurance company’s underwriter will take the information they gathered from your application, phone interview and medical exam to decide if you’re eligible for coverage, and if so, what your premium is. Because there is so much information to analyse, the clearance procedure can take several weeks, or up to a month.
If you get authorised and are happy with the quoted premium, you will be provided the policy documentation to sign and approve. While traditionally, this step is accomplished with a physical copy, technology sometimes allows this paperwork to be completed with a digital signature. You will also chose if you wish to pay your premium monthly or annually. After the policy documents are signed, you could be requested to mail a physical copy to your insurance company. It is normally recommended to maintain a second copy on hand at your house.