How to Buy Life Insurance

Buying life insurance is more time-consuming than purchasing a home or auto insurance policy, as it’s usually a bigger purchase. So when applying for life insurance, it’s important to ensure you’re getting the right policy for your needs and following all application steps correctly.

It’s also helpful to familiarize yourself with life insurance terms before shopping for policies — like “riders” or “flat extras” — so you know what you’re buying.

To guide you through picking the right life insurance policy and the application process, we’ll go through everything from picking a company to what age you should buy a life insurance policy. Continue reading to learn all the ins and outs of how to shop for life insurance.

How to Buy Life Insurance 

At first, life insurance may seem confusing when shopping around and researching how to obtain it. It may initially seem overwhelming with all the different types of life insurance and the lengthy application process.

In most cases, you’ll have to speak to an agent to purchase a life insurance policy, complete a brief phone interview, and undergo a basic medical exam.

Below, you can read through all the important steps you should take when buying a life insurance policy. 

Determine How Much Life Insurance Coverage You Need

People buy a life insurance policy mainly to support their dependents after they pass away. Therefore, one of the most important steps to getting life insurance is figuring out how much of a payout you’ll need. 

To determine how big of a death benefit payout you’ll need for your dependents, consider your annual income and any future major financial costs your dependents might have.

For example, you may want a large enough payout to cover your children’s college tuition, your mortgage, debts, and any other major costs that would burden your beneficiaries (read our “Is Tuition Insurance Worth It?” for more information). You’ll also want a payout to replace your annual income and support your dependents for several years if they aren’t adults yet.

Finally, you’ll also want to consider any funeral costs. If your beneficiaries would struggle to afford your funeral costs, add funeral costs to your coverage calculations. 

If you need help calculating how much life insurance you need, there are plenty of free online tools you can use to see how much money your dependents would need. They help ensure you don’t forget about any additional costs that might come up for your beneficiaries.

Choose the Best Type of Life Insurance Policy for You

While calculating the coverage amount you need is critical, you’ll also need to research which type of life insurance policy is best for you. The two life insurance types are permanent and term. 

Permanent life insurance lasts for the policyholder’s entire life if they maintain payments. On the other hand, all types of term life insurance last for a fixed period. 

There are a few variations under the permanent and term life insurance categories, such as whole or universal life insurance policies. Look at the basics of these different types of life insurance below. 

Term Life Insurance 

Term life insurance is generally the cheapest option of all life insurance policies, as term life insurance coverage doesn’t last indefinitely like permanent life insurance. Instead, term life insurance lasts for the term you pick, such as 10 or 30 years.

If you pass away during the term life insurance period of coverage, your beneficiaries will receive the term life insurance payout.

However, if the term period ends while you’re still alive, you won’t get any benefits or payouts unless you paid extra to get part of your premiums returned. You may also have the option to renew your term life insurance policy again for another period or convert it into a permanent life insurance policy.

Term life insurance can be a useful option if you need temporary coverage at a cheaper price. For example, suppose you want extra financial protection while paying off a mortgage or sending your children to college. In that case, consider term life insurance until your major financial obligations get fulfilled.

Visit our term life insurance buying guide for more information.

Universal Life Insurance 

Universal life insurance is a form of permanent life insurance. With universal life insurance, the policy has a cash component that gains interest and helps you accumulate cash value. This cash value is on top of your death benefit payout, so it can be useful if you want to withdraw money from the policy.

You can also sometimes use the cash component of universal life insurance to pay your life insurance rates for a while or decrease your death benefit payout if you need to save money temporarily. So if you want extra flexibility with your life insurance policy, consider looking into a universal life insurance policy.

Whole Life Insurance 

Whole life insurance is another type of permanent life insurance similar to universal life insurance. Like universal life insurance, it has cash value in addition to the death benefit payout. However, it also has fixed premiums, meaning your life insurance rates stay the same throughout your life — this is great if you lock in rates at a young age. 

However, whole life insurance is more expensive, as premiums are fixed along with the death benefit. Since universal life insurance adjusts rates and cash value depending on if you withdraw money, whole life offers greater security to customers than universal life. 

If you want more tips on choosing between different types of policies, visit our guide to term vs. whole life insurance.

Look Into Life Insurance Companies 

Once you’ve decided what coverage you need and the life insurance policy you want, your next step is to find a life insurance company. You should consider a few things when shopping for life insurance:

• Check companies’ coverages. If you know what type of life insurance you want, look for companies offering that life insurance. Not all life insurance companies offer specific types of life insurance that are less common.
• Check companies’ financial ratings. You want to ensure your chosen company won’t go bankrupt and not pay out your death benefit to your beneficiaries. Check the company’s financial ratings on trustworthy sites.
• Check companies’ customer ratings. In addition to financial ratings, you should also check what customers say about the company’s customer service and overall satisfaction with the company.

Read more: What happens if my life insurance company goes bankrupt?

Since a life insurance company is a company you trust to handle the death benefits payouts to take care of your dependents after you pass, it’s important to pick a life insurance company you’re happy with.

Get Life Insurance Quotes 

Once you have a list of the best life insurance companies, the next step is to get quotes from some of the companies you’re considering. In most cases, you can get a free quote directly from the life insurance company’s website. Getting quotes from multiple companies will help you determine which has the most affordable rates.

Generally, you’ll need to provide basic information to get life insurance quotes. For example, you’ll need to provide personal information like your name, address, and gender.

The quote will also ask basic questions about your medical history, like if you smoke or have had major surgeries. You don’t have to provide detailed medical history at this point to get the quote, as quotes are just a basic price analysis to estimate what you might pay.

If the rates are out of your budget, get multiple quotes to see if you can find anything cheaper. You may also have to reconsider the coverage level or type of life insurance you initially wanted. However, any protection you can provide to your beneficiaries is better than none. 

Fill Out Life Insurance Application 

Once you’ve compared life insurance companies’ costs and ratings, the next step is to fill out an application with your chosen life insurance company. 

You can usually fill out a life insurance application online, and you’ll need to supply more in-depth information than you did for your quote. For instance, you’ll need to give a more detailed medical history and your Social Security number.

Read more: Do you need a Social Security Number to get life insurance?

Complete Life Insurance Phone Interview 

Once you’ve submitted your life insurance application, the life insurance company you applied for may want you to complete a phone interview. These short phone interviews allow the company to confirm the information submitted on your application and learn additional details about your lifestyle.

For example, they may ask if you have any dangerous hobbies, such as rock climbing, and other relative questions.

Complete Life Insurance Medical Exam 

Most life insurance companies require you to complete a medical exam before being approved for coverage. Life insurance companies usually send a medical examiner to your home to take your vitals, like blood pressure, weight, and height. These exams are usually short and gauge your overall health.

Remember that if you need to take a medical exam for approval, the process will take a few weeks longer than a guaranteed universal life insurance policy, which isn’t dependent on your health. However, if you’re in good health, a medical exam ensures you receive low life insurance rates.

Insurance Company Will Approve or Deny Application 

Once you’ve completed all the steps for a life insurance application, the only thing you can do is wait to hear back from the insurance company. The life insurance company will review the information you provided during the application process and your medical exam results.

Then, the life insurance company will approve or deny you coverage. Generally, people get denied if they have serious health issues like cancer or heart disease or are older than 80. You can explore other life insurance options like no-exam life insurance or burial insurance if you get denied. 

If approved, the life insurance company will send you a final quote and all the life insurance documents to sign. You’ll then make your first payment and decide if you want to pay a monthly or annual rate. Once all the life insurance policy documents are signed and you’ve paid, your life insurance policy will go into effect.

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Why should I buy life insurance when I’m young? 

We recommend buying life insurance young because you can get much cheaper life insurance rates. On the other hand, older customers often have health problems like heart disease or diabetes that can raise their life insurance rates. So, most younger customers can often lock in a lower rate if they’re relatively healthy.

In addition, while younger customers may want to put off buying life insurance due to other expenses like mortgages and school debt, it’s smart to get life insurance if younger customers have dependents. That way, younger customers’ beneficiaries won’t struggle with financial issues after an unexpected death. 

Should you buy life insurance when you’re young and single? 

If you don’t have any life insurance beneficiaries, such as a partner or children, you may wonder if you should get life insurance. 

Remember that you don’t have to leave your death benefit payout to a person. You may also leave your money to a charity of your choice, or you can use it to pay off debts and leave the remainder to a close relative, such as a parent.

In addition, if you’re an owner or co-owner of a business, you could leave your benefit to the business if it would struggle financially after your death. This benefit ensures the business won’t go under if you pass away unexpectedly.

So, we recommend you buy life insurance while young and single. It can be useful to lock in a cheaper rate, especially because you may have a partner or children you wish to provide for in the future after your death.

Buying Life Insurance When You Have a Baby 

If you’re having a baby, there are a few different types of life insurance you can choose. For example, you can choose a term life insurance policy that lasts until all your major financial obligations end, such as sending your child to college or paying off your mortgage. 

You can also choose a permanent life insurance policy that lasts for the duration of your life.

When you choose the coverage amount — also known as the death benefit payout or cash component — ensure it’s enough to provide for your child for however long they need. So, it should be enough to pay off debts, replace your income, and provide for major costs like college.  

When should you buy life insurance for your child? 

Life insurance buyers can usually buy life insurance for children within the first month of birth. It’s often sold as a rider to your life insurance policy and offers a small payout to cover funeral expenses and remaining medical bills. 

Sometimes, there’s the option to turn the life insurance policy over to your child when they turn 18, so they can get low rates and have life insurance from a young age. 

When should I purchase term life insurance?

Term life insurance is a great option if you only want coverage for a specific period. It’s often cheaper to buy it at a young age, as it doesn’t cover you for your entire life. However, you can sometimes convert your term life policy to a permanent life policy at the end of your term. 

You may want term life insurance if you have a mortgage or debts you don’t want your spouse to be stuck with after your death. You may also want it to ensure your children’s college gets paid for after an unexpected death. 

When should I buy permanent life insurance?

As we mentioned earlier, it’s always best to buy a life insurance policy when you’re younger, as the rates are almost always cheaper than if you buy a life insurance policy after retirement. In addition, if you choose a life insurance policy with cash value, it’s tax-deferred, and you could use that money throughout your life for extra financial backup. 

Therefore, the earlier you buy a permanent life insurance policy, the more money you can accumulate. Also, you can lock in a cheaper rate when you buy a permanent life insurance policy while younger and healthier.

Why do prices increase when you wait to buy life insurance?

Your quoted rates will increase if you wait to buy a permanent life insurance policy. For example, the rates for a 40-year-old are almost twice those for a 20-year-old.

The older you are, the more likely you’ll develop serious health issues that could contribute to higher life insurance rates or coverage denial.

Life insurance companies are also more willing to offer cheaper rates to younger customers, as the likelihood of them paying out a death benefit early in the policy is much lower than an older customer.

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Case Studies: How to Buy Life Insurance

Case Study 1: Young and Single

Sarah is a 25-year-old single individual with no dependents. She is considering whether she should buy life insurance at her age. While she doesn’t have immediate beneficiaries, Sarah realizes that life insurance can still be beneficial for her. She can use the payout to pay off any outstanding debts or benefit her business in the event of her unexpected death.

Case Study 2: Expecting Parents

John and Emily are a married couple expecting their first child. They want to ensure their child’s financial security and future well-being.

They decide to purchase a term life insurance policy that will provide coverage until their major financial obligations, such as their child’s college tuition and mortgage, are fulfilled. They also consider the amount of the death benefit payout to cover funeral expenses and other potential costs.

Case Study 3: Retirement Planning

David is 55 years old and approaching retirement. He realizes that he hasn’t yet purchased life insurance and wonders if it’s too late. David learns that while rates for permanent life insurance policies tend to increase with age, it’s still beneficial to buy a policy while he’s relatively healthy.

By purchasing a permanent life insurance policy now, David can accumulate cash value over time and lock in a lower rate compared to buying a policy after retirement.

The Final Word on How to Purchase Life Insurance 

The first step to purchasing a life insurance policy is deciding what type you want and how much coverage you need to take care of your beneficiaries. 

You’ll also need to research companies offering your desired coverages and get plenty of quotes. Finally, once you’re ready to buy a life insurance policy, you’ll have to fill out the application and wait for approval.

If you’re ready to start shopping around for life insurance rates, compare companies to ensure you get the best deal. Then, use our free rate comparison tool to find your area’s best life insurance rates.

Your life insurance quotes are always free.

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