Getting Life Insurance: A Step-By-Step Guide

Getting life insurance can be a daunting task, but it is a crucial step towards securing your family's financial future. The process involves several steps, starting with assessing your needs and determining the coverage amount required. This calculation depends on factors such as family size, employment status, age, debts, and future goals. The next step is understanding the different types of life insurance available, such as term life insurance and permanent life insurance, each with its own pros and cons. Once you've decided on the type of insurance, it's time to shop around and compare providers based on their financial stability, customer service, policy features, and premium affordability. After selecting a few potential providers, you can request quotes and speak directly with insurers. The application process typically involves filling out a detailed form and undergoing a medical exam. It is important to be honest during this process as discrepancies can affect your coverage. Finally, reviewing and updating your policy regularly is essential, especially after major life events.

Calculate how much coverage you need

Calculating how much life insurance coverage you need is a critical step in the process of buying life insurance. This part of the process can be daunting for many people, but it need not be. Here are some steps and tips to help you determine the right amount of coverage for your needs:

Assess Your Financial Resources and Obligations:

Firstly, take a comprehensive snapshot of your finances by considering the following:

• What financial resources will be available to your survivors or heirs after your death? This includes social security and other retirement-related survivor benefits, group life insurance (e.g. an employer's policy), and other assets and financial resources.
• When will these resources become available? For example, social security benefits may be available immediately to a surviving spouse with dependent children, but not until the age of 60 if there are no dependent children.
• Determine what your survivor's ongoing financial needs may be after your death. Focus on three main categories: final expenses, debts, and income needs.

Subtract Your Survivors' Financial Resources from Their Financial Needs:

Next, subtract your survivors' financial resources (calculated in the previous step) from their financial needs to determine how much coverage to buy. Many people are underinsured because they skip this step or take a shortcut, such as simply buying a multiple of their annual income.

Consider Future Costs and Obligations:

Think about future costs that your life insurance should cover, such as college tuition costs for your children, the costs of raising children, debt payoff balances, and living expenses for dependents.

Use a Rule of Thumb as a Starting Point:

While it may not be precise for your specific situation, a common rule of thumb is to have a policy with a death benefit equal to 10 times your annual salary. This can serve as a good starting point for your calculations, and you can adjust it based on your unique circumstances and financial goals.

Utilize a Life Insurance Calculator:

Online life insurance calculators can be a helpful tool in estimating your coverage needs. These calculators take into account various factors, such as your annual income, the number of years your dependents will need financial support, debt obligations, future college costs, funeral expenses, savings, and any existing life insurance coverage.

Work with a Financial Planner:

If you need further assistance or want a more precise figure, consider consulting a financial planner. They can help you develop a more precise estimate of the coverage you need by taking into account your specific financial situation and goals.

Remember, the goal is to ensure that your loved ones will have the financial resources they need and maintain their standard of living after your death. By following these steps and seeking professional advice when needed, you can make an informed decision about the amount of life insurance coverage that best suits your unique circumstances.

Decide on the type of policy

There are two main types of life insurance: term life insurance and permanent life insurance. Within permanent life insurance, there are several subtypes to consider.

Term Life Insurance

Term life insurance is a policy that is purchased for a period of time (a term). The policy pays money to the named beneficiaries if the insured dies during the term. Term life insurance is intended to provide lower-cost coverage for a specific period, like 10 or 20 years.

Term life policies may include a provision that allows coverage to continue (renew) at the end of the term, even if your health status has changed. However, those premiums may be higher than the original policy. Term life insurance is generally more affordable than permanent life insurance. It provides coverage for a set number of years, paying out as long as your policy hasn't expired and you've paid the premiums.

Permanent Life Insurance

If you’re interested in lifelong coverage and the opportunity to build cash value—which accumulates on a tax-deferred basis—consider permanent life insurance. It’s more expensive than term life because of the coverage length, cash value and policy charges, but you can tap into the policy’s cash value while you’re alive.

Whole Life Insurance

Whole life insurance can provide coverage for the duration of your life, usually up to 95 to 120 years of age. An account within the policy builds cash value over time by using part of your premium payment and adding interest or investment gains, depending on the policy type. Whole life insurance is one of the most expensive ways to buy life insurance. However, it has built-in guarantees that the premium will remain fixed, the death benefit will remain the same, and the cash value will earn a fixed rate of return.

Universal Life Insurance

Universal life insurance (UL) can seem complex because it has some subtypes, such as variable universal and indexed universal life insurance, with different features. With universal life, you can typically vary premium payments and adjust the death benefit amount within certain limits. UL policies have a cash value component. Universal life insurance is generally cheaper than whole life insurance.

Variable Life Insurance

Variable life insurance is a riskier type of permanent life insurance. A common variable life insurance policy is built on two pieces: a face-value death benefit and a variable cash value. Your cash value will rise and fall based on your payments and the performance of your selected investments. Unlike with whole life, your variable life cash value can be part of your death benefit. The greater range of investment options offered by a variable life policy means it could provide a greater benefit to your beneficiaries when you pass away—especially if you're a savvy investor. But it also opens you up to much higher risk, fees, and costs than whole life or universal life policies.

Final Expense Life Insurance

Also known as funeral or burial insurance, final expense insurance is a type of whole life insurance that offers a smaller and more affordable death benefit designed to help cover your end-of-life expenses like funeral costs, medical bills, or outstanding debt. While other types of life insurance may have age and health requirements, final expense policies can be easier for older or less healthy individuals to qualify for.

No-Exam Life Insurance

No-exam life insurance is any type of life insurance that does not require a medical exam. There are no-exam options for term, whole and universal life policies. The best no-exam life insurance rates are offered to younger buyers (below 50) in good health.

Research different insurance carriers

When it comes to researching different insurance carriers, there are several factors to consider. Here are some detailed guidelines to help you make an informed decision:

Understand Your Needs

Firstly, it's important to identify your specific needs and requirements. Different insurance carriers offer a range of policies, so understanding your personal situation will help you narrow down your options. Consider factors such as your age, health, financial obligations, and the level of coverage you require. Ask yourself why you need life insurance and what financial goals you want to achieve. This self-assessment will guide your research and ensure that the carriers you consider can meet your unique needs.

Compare Multiple Carriers

Don't settle for the first insurance carrier you come across. It's crucial to compare multiple options to find the best fit. Look at their financial strength and stability by checking their ratings from agencies like AM Best. A strong financial rating indicates the carrier's ability to pay future claims and provides confidence in their longevity. Additionally, research their customer satisfaction levels and complaint history. You can refer to sources like the National Association of Insurance Commissioners (NAIC) to understand how each carrier handles customer issues and if they have received more or fewer complaints than expected for their size.

Evaluate Policy Options

When researching insurance carriers, pay close attention to the types of policies they offer. As mentioned earlier, there are two main types of life insurance: term life insurance and permanent life insurance. Term life insurance provides coverage for a specific period, making it ideal for temporary needs. On the other hand, permanent life insurance offers lifelong coverage and includes a cash value component that can be borrowed against. Carriers may also offer variations of these policies, such as whole life, universal life, or variable life insurance. Choose a carrier that provides the type of policy that aligns with your long-term financial goals and needs.

Assess Affordability and Value

Cost is an essential factor in your decision. Obtain quotes from multiple carriers and compare their premiums for the coverage you require. While cost is a crucial consideration, don't solely base your decision on price. Evaluate the value offered by each carrier in terms of coverage, add-ons, and potential for dividend payments. Some carriers may provide additional benefits, such as online claims processing, flexible payment options, or policy conversion features. Weigh these factors along with the premium to determine the overall value of each carrier's offering.

Consider Accessibility and Convenience

In today's digital age, many individuals prefer the convenience of purchasing and managing their insurance policies online. When researching carriers, assess their digital presence and the level of accessibility they offer. Do they have a user-friendly website? Can you easily find information about their policies and application process? Are they transparent about their offerings? Carriers that provide clear and detailed information about their policies online demonstrate a commitment to customer service and transparency.

Seek Independent Reviews and Recommendations

Don't rely solely on the carrier's website and marketing materials. Seek out independent reviews and testimonials from customers who have firsthand experience with the carrier. You can find these reviews on third-party websites or through word-of-mouth recommendations. These reviews will give you insights into the carrier's customer service, claim handling, and overall satisfaction levels. Additionally, consider consulting experts in the field, such as financial advisors or insurance brokers, who can provide unbiased advice and guidance based on their knowledge of the industry.

Remember, taking the time to research and compare different insurance carriers will ensure that you make a well-informed decision. By considering your unique needs, evaluating policy options, assessing affordability, and considering accessibility, you can choose a carrier that offers the best value and aligns with your long-term financial goals.

Compare quotes from different providers

Comparing quotes from different providers is an essential step in getting life insurance. Here are some detailed tips on how to do it:

Assess Your Needs

Before comparing quotes, it is crucial to determine whether you need term or permanent life insurance. Term life insurance is ideal if you only want coverage for a specific period, such as until your children finish college. On the other hand, permanent life insurance offers lifelong coverage and includes a cash value component. Consider factors like your financial obligations, income replacement, and future expenses when deciding on the amount of coverage you need.

Research Multiple Providers

Explore life insurance companies that offer the type of policy you require. Compare providers based on customer satisfaction and financial strength ratings from agencies like J.D. Power and AM Best. This will give you an idea of how these companies interact with their clients and their stability in paying out claims.

Compare Life Insurance Options

Gather quotes from multiple insurers and carefully compare the type of policy, coverage amount, and death benefit offered. Shopping around can help you find the best deal as insurers evaluate risk factors differently, resulting in varied premiums. Consider working with a broker who can shop around on your behalf and provide expert advice tailored to your needs.

Apply for a Policy

After choosing an insurer and deciding on the type of insurance, you can apply through a licensed agent or online. Keep in mind that the application process may require a medical examination, depending on the policy specifics. You will also have a "free look" period after purchasing the policy, allowing you to review and ensure it aligns with your expectations.

Prepare for a medical exam

A life insurance medical exam is a standard part of the application process. The purpose of the exam is to assess your overall health to determine the level of risk you pose to the life insurance company. The younger and healthier you are, the less you'll pay in life insurance premiums. Even if you're confident in your health, it's a good idea to prepare for your medical exam.

In the weeks leading up to the exam:

• Drink plenty of water to help dilute concentrations of sugar and protein and clear toxins from your system.
• Limit your salt intake. Too much salt can make your urine too concentrated and lead to dehydration.
• Eat a healthy diet rich in whole grains, fruits, vegetables and low-fat dairy products to help lower your blood pressure. Avoid processed food with added sodium.
• Limit alcohol. If you drink alcohol, do so in moderation. That's one drink per day for women and two per day for men. Drinking more than a moderate amount can raise your blood pressure and reduce the effectiveness of blood pressure medications.

The day before the exam:

• Avoid alcohol and nicotine. Both can increase your blood pressure. Remember that the blood or urine test will reveal recent nicotine use.
• Avoid red meat, which is high in cholesterol.
• Avoid over-the-counter medications such as antihistamines and nasal decongestants, as these can increase blood pressure.
• Get a good night's sleep. People who sleep less than six hours a night may have increased blood pressure.

On the day of the exam:

• Avoid caffeinated drinks such as coffee, soda and tea.
• Avoid strenuous exercise, which can raise your blood pressure.
• Drink plenty of water. Being well-hydrated also makes it easier to provide urine and blood samples.
• Have a photo ID, such as a driver's license, state-issued photo ID or passport, ready.
• Have your medical information ready, including a list of medical conditions, treatments, prescription medications and contact information for your physician(s).
• Wear short sleeves or sleeves that can be rolled up so the examiner can get your blood sample.

When getting your blood pressure reading, keep in mind that a full bladder can raise your blood pressure reading by 10 to 15 points, and crossing your legs can add 2 to 8 points. Dangling your legs can increase the blood pressure reading by 6 to 10 points.

Frequently asked questions