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.”
Take time to find the right life insurance policy and company for you. Doing so can help ensure your loved ones’ financial security and well-being in the long run. Here we’ll give you the tools you need to research life insurance and find a policy that fits both your coverage needs and your budget.
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
Anyone with dependents (meaning others who rely on their income) should consider buying life insurance. Life insurance might also be important if you have a spouse, a mortgage, a business partner, or another major financial obligation. You can learn more in our article “Do I Need Life Insurance?”
2. Choose the right type of life insurance
There are a few different types of life insurance to choose from. The right kind for you will depend on your current financial status and long-term coverage needs.
Usually 10-30 years
Until the insured passes away
Young parents and families
Standard life insurance needs
Secondary retirement savings
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¹Learn more about cash value life insurance
²Learn 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.”
Whole life insurance, on the other hand, offers lifelong coverage. It promises to pay out at the end of your life as long as premiums have been paid in full. “There is [also] a cash value life insurance associated with your policy,” says McLean. “These policies build value over time with guaranteed rates similar to a high-interest savings account.” The trade-off? Whole life policies are much more expensive than term.
Universal life insurance is similar to whole life, but it features flexible payment plans and investment opportunities. It also tends to be less expensive. However, cash value return rates are not guaranteed with universal life insurance as they are with whole life.
If you’re on the fence about which type of life insurance coverage to pursue, we recommend speaking with an independent insurance agent or financial advisor to figure out which policy type is best for your situation.
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.
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
There’s no hard-and-fast rule for determining the right death benefit. However, you can get a good estimate using a few different tricks.
“Purchasing an amount equal to seven to 10 times annual income is probably a good benchmark for younger families,” says Gordon E. Conwell, III, licensed insurance agent and owner of AmericanTerm.com. For a more accurate estimate, he also recommends this calculator from LifeHappens.org.
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.
“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. They’ll walk you through coverage and pricing from various insurers and help you find the best plan.
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.
“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.”
Remember, your life insurance doesn’t just need to be affordable. It needs to be there for you and your family when it’s needed most. An insurer with strong financial ratings, great customer service reviews, and customizable coverage will best fulfill that promise.
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:
- Family health history
- Tobacco and alcohol use
- Risky hobbies
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.