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Life insurance can be a difficult item on the financial to-do list. “Buying something for when you die is not appealing, but you still need to take the time to research it,” says Zhaneta Gechev, a 15-year life insurance agent and owner of OneStopLifeInsurance.com. “The biggest mistake I see when people shop for life insurance is to rush through it.” In 2025, shopping smart also means understanding digital advances like e‑applications, e‑sign/e‑delivery and accelerated underwriting, which can shorten time‑to‑issue for eligible applicants (LIMRA/Life Happens Barometer; Gen Re AU survey).
Take time to match coverage to your needs and choose a financially strong insurer. Consumer guides from the NAIC and the Insurance Information Institute explain key policy types, riders, illustrations and how to compare insurers. We’ll walk through a 6‑step process—using current market practices and data—so you can select coverage that fits your budget and provides the right guarantees for your family.
How to Buy Life Insurance in 6 Steps
- Decide whether you need life insurance
- Choose the right type of life insurance
- Determine your death benefit
- Consider adding riders to your policy
- Compare life insurance companies
- Compare quotes and buy your life insurance
1. Decide whether you need life insurance
Buy life insurance if someone relies on your income or you have debts or obligations that would continue if you died. Group life through work is typically term coverage and often limited to about one times salary; it may not be portable if you change jobs—so it rarely replaces an individual policy for long‑term needs (Insurance Information Institute). Also note that government support is limited: Social Security’s lump‑sum death payment is only $255, and survivor benefits depend on age, earnings history and dependent status (Social Security Administration). You can learn more in our article “Do I Need Life Insurance?”
2. Choose the right type of life insurance
Life insurance falls into two broad categories: term (temporary protection) and permanent (lifetime protection with cash value). Permanent options include whole life, universal life (current‑assumption UL and guaranteed UL), indexed UL (IUL), and variable UL (VUL). Rising interest rates in recent years have generally improved credited rates on fixed products and dividend scales for participating whole life, but illustrated values are never guarantees and fees/charges still apply (III; NAIC; AM Best market commentary). For UL/IUL/VUL, understand policy charges—cost of insurance (COI), expense loads and possible surrender charges—as these directly affect cash value performance over time (NAIC).
Usually 10-30 years | Until the insured passes away | |
Young parents and families Standard life insurance needs | Estate planning Secondary retirement savings | |
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¹Learn more about cash value life insurance
\n²Learn more about guaranteed universal life insurance, our recommendation for senior life insurance
“For most people looking for a simple financial protection product, term life insurance makes the most sense,” says Mitch McLean, Director of Brokerage at PolicyAdvisor.com. “You can almost think of it like leasing a car: You have the coverage while you are paying, but when the contract ends, the coverage is over.” Modern term policies often include convertibility (switch to permanent coverage without new medical evidence within a set window) and renewability at age‑based rates—key features to verify when you compare policies (NAIC; III).
Whole life insurance provides lifetime coverage with guaranteed premiums, death benefit and minimum cash values; many policies are “participating” and may pay non‑guaranteed dividends that can be taken in cash, used to reduce premiums or buy paid‑up additions. Loans/withdrawals reduce cash value and death benefit and can cause lapse or taxes if unmanaged (III).
Universal life insurance offers permanent coverage with flexible funding and several variants: current‑assumption UL (interest declared by the insurer, subject to minimums), guaranteed UL/no‑lapse (focus on a guaranteed death benefit to a selected age with little cash value), indexed UL (interest credited by index formulas with caps/participation rates and floors; policy does not directly invest in the index), and variable UL (market‑based subaccounts with values that can rise or fall). IUL parameters can change over time, and VUL involves market risk and requires a prospectus (III; NAIC; FINRA).
If you’re on the fence, ask an independent agent for side‑by‑side policy illustrations under conservative assumptions and stress tests. Illustrations are educational tools—not guarantees—and policy charges (COI, expenses, surrender charges) and crediting assumptions materially affect long‑run performance, especially for UL/IUL/VUL (NAIC; FINRA).
3. Determine your death benefit
The amount of coverage you purchase on your life insurance policy is known as a “death benefit.” This dictates the amount that would be paid to your beneficiaries if you were to pass away while covered by your life insurance. Death benefits are generally excluded from beneficiary income for federal tax purposes, but any interest paid (for example, under settlement options or delayed payments) is taxable; outstanding loans and prior accelerations reduce the final payout (IRS FAQs).
The death benefit, typically paid out as a one-time lump sum, should be enough to cover any financial obligations you’d leave behind if you passed away. Expenses covered by the death benefit could include:
- Child care or tuition for children
- Remaining mortgage payments
- Debt from a business loan
- Funeral expenses
- Estate management costs
- Etc.
Skip crude rules of thumb and run a full needs analysis: estimate the inflation‑indexed income your family would need each year, the number of years, debts to pay off, final expenses and education funding; then subtract liquid assets, any employer life insurance, and estimated Social Security survivors benefits (III; FINRA; SSA). To be inflation‑aware, discount future income needs at a conservative real (after‑inflation) rate.
Example (for illustration only): Suppose your family needs $50,000 per year (in today’s dollars) for 15 years. Using a 1.5% real discount rate, the present value of that income stream is roughly $50,000 × 13.3 ≈ $665,000. Add $200,000 to pay off the mortgage and $15,000 for final expenses, then subtract $120,000 in savings and the present value of expected Social Security survivor benefits. The remainder is your target death benefit. Cross‑check with this calculator from LifeHappens.org and a second tool to test assumptions (III).
4. Consider adding riders to your policy
It’s possible for life insurance to offer financial aid outside of the one-time death benefit payment. These supplementary coverages are called “riders.” Riders can be used to extend coverage to family members, increase the size of the death benefit in special circumstances, or supplement lost income if the insured becomes ill or disabled. The last type, known as “living benefits,” are especially popular as add-ons to life insurance. Common living‑benefit frameworks are anchored in U.S. tax and insurance rules: accelerated death benefits under IRC 101(g) (terminal and chronic illness) and qualified long‑term care riders under IRC 7702B, each with distinct triggers, disclosures and tax treatment (IRS Publication 525; NAIC LTC guidance; IIPRC standards).
“You might be looking at [the same] 20-year term policy offered by two separate companies. However, one might offer living benefits and the other won’t,” says Gechev. “These built-in features could allow you to use your life insurance while still alive. In other words, you don’t have to die to use your insurance.”
Consider whether you have special circumstances that warrant a life insurance rider. That could include things like:
- A family history of serious illness, like cancer or heart disease
- A dangerous occupation that could result in death or disability
- A spouse or children that could benefit from life insurance coverage
If you think you might benefit from supplemental life insurance coverage, talk to an independent life insurance agent about your options. Key 2025 watch items and questions to ask: for chronic illness vs. LTC riders, clarify whether benefits are indemnity or reimbursement, per‑diem limits that may apply, elimination periods, certification requirements, and whether benefits reduce your death benefit dollar‑for‑dollar or include an extension‑of‑benefits provision. Many chronic‑illness riders allow monthly accelerations (often 2%–4% of the face amount) and guarantee a residual death benefit for beneficiaries; details vary by carrier and state filing (IRS Publication 525; IIPRC; NAIC LTC). Also consider return‑of‑premium riders on term, children’s term riders (small additional coverage amounts with conversion options), waiver‑of‑premium/charges for disability, and policy‑protection features on UL/IUL/VUL like overloan protection or no‑lapse guarantees (NAIC).
5. Compare life insurance companies
Finding the most affordable life insurance company for your coverage is important. However, price isn’t the only factor to consider when selecting a life insurance provider. Start with multi‑agency financial strength ratings: target at least A‑ (Excellent) from A.M. Best and investment‑grade ratings (BBB‑/Baa3 or higher) from S&P, Fitch and Moody’s. Also note rating outlooks (stable/positive/negative) and any watch status, which signal potential direction (AM Best rating guide; S&P understanding ratings).
“Consumers should look at financial ratings and online reviews and focus not only on price, but also on the additional benefits they can get by paying a couple dollars more for a better policy,” says Conwell. “Things like living benefits and/or a great conversion option could pay off someday if [the insured] ever suffers an illness and needs money or decides they may want some portion of their term life insurance for longer than they originally planned for.” No‑lapse guarantees on certain universal life policies can also secure lifetime coverage at lower cost than traditional whole life (III).
Check customer outcomes, not just balance‑sheet strength. The NAIC Complaint Index benchmarks each insurer’s relative complaint performance (1.0 is average; below 1.0 is better) by legal entity; review the last several years for the line you’re buying. Independent satisfaction benchmarks like J.D. Power’s U.S. Individual Life Insurance Study (1,000‑point scale) are useful cross‑checks—its 2024 release ranks State Farm highest overall. For examples of top‑tier financial strength, see Northwestern Mutual and New York Life, each holding high ratings across agencies. Remember that state guaranty association protection is limited and varies by state (many states cap life death benefit coverage at $300,000 and cash surrender at $100,000), so it’s not a substitute for choosing a strong insurer (NAIC CIS; J.D. Power 2024; Northwestern Mutual ratings; New York Life ratings; NOLHGA).
Learn more about how to compare life insurance companies and choose the best one for you in our review of the best life insurance companies.
6. Gather quotes and buy your life insurance
The last stop on your life insurance shopping journey is to compare quotes and choose an insurer. Just like with auto insurance or homeowners insurance, life insurance quotes are individual to each person. Every company you check prices from will offer a slightly different premium depending on its analysis of factors like:
- Age
- Health
- Family health history
- Occupation
- Tobacco and alcohol use
- Risky hobbies
Underwriting class drives price. Non‑smokers in good health qualify for preferred classes; standard and substandard classes cost more. Some risk factors are especially impactful: current smokers have about three‑times the all‑cause mortality of never‑smokers; nearly half of U.S. adults have hypertension (only about 1 in 4 have it controlled); adult obesity remains widespread (22 states had ≥35% prevalence in 2023); and about 38 million Americans live with diabetes—control, treatment and complications determine outcomes. These factors help explain why premiums vary widely by health profile (NCI on smoking risk; CDC hypertension facts; CDC obesity maps; American Diabetes Association).
Many carriers now offer accelerated or automated underwriting for eligible applicants, using electronic data (e.g., prescription histories, MVR, and increasingly EHRs) to render fluid‑free decisions and shorten cycle time; availability, face‑amount limits and eligibility criteria vary by insurer. Application activity remains active across channels, and e‑sign/e‑delivery and self‑service are increasingly standard parts of the experience (Gen Re AU survey; MIB Life Index; LIMRA/Life Happens Barometer). We recommend checking rates from at least three life insurance companies to find the best value on the coverage you need. If you’re buying term life insurance, you’ll be able to get quotes online from many providers. Customers shopping for permanent life insurance will have to speak with an agent to get a price estimate and a policy illustration—and remember, illustrations are not guarantees (NAIC).
What’s Next?
- Explore our review of the best life insurance companies
- Learn more with our life insurance FAQ
- Save by bundling life insurance with one of auto insurance
