How to buy life insurance

Do you need life insurance?

Life insurance may not be on your radar yet, but for many Americans, it should be. Before you go out and get a policy, you’ll want to determine if you need any life insurance yet. Here are a few factors to consider:

• Age: Just because you’re young does not mean that you don’t need life insurance. But, usually, the older you get, the more financial obligations you have, which means you should consider getting a life insurance policy. And if you’re getting older in years, you may consider an “end-of-life” policy to help pay for funeral and burial costs.
• Medical history: If you have a poor medical history, you may want to consider life insurance. This can make a policy more expensive, but it may help put you and your family at ease knowing they are covered should the worst happen.
• Financial obligations: The more financial obligations you have, the more important it is to protect those you love with a life insurance policy. If you have a mortgage, car payments or a small business, it’s a good idea to have enough coverage to handle those obligations.
• Marital status: If you’re single with no assets or debts, you may not need much life insurance coverage. If you’re married, you will want to consider the spouse you would leave behind should you die. Most married couples would benefit from a life insurance policy that covers each spouse should the other one pass away.
• Kids: If you have kids, you’ll want to make sure they are fully covered financially should you die. Getting a life insurance policy is all the more important as you introduce kids into the equation. You may also consider a child rider or individual policy for each member of your family as well.
• Income sources: If you are a one-income family and have a spouse and kids, having a life insurance policy in place can help replace your income should you die. And even if you both work — you count on each other’s income — having a policy for both working spouses can help put the family at ease.

Types of life insurance

Once you’ve determined that you need a life insurance policy, you’ll want to figure out which type of life insurance you want. There are two main types of life insurance: permanent life insurance and term life insurance.

Permanent policies offer lifetime coverage and may also build cash value within the policy that you can borrow against. Permanent policies are typically much more expensive as well, with higher monthly premiums.

Term life insurance offers temporary coverage for a low cost. You can get a large amount of coverage for a relatively small monthly premium, but coverage only lasts as long as the policy. Term policies usually range from 10 to 30 years in length, but you don’t receive a payout if you outlive the policy.

While there are many factors and customizations available with permanent life insurance, term policies are fairly straightforward. It mainly comes down to whether or not you want to build cash value and pursue potential tax benefits of permanent insurance for a much higher cost or simply get a low-cost term policy to cover you until you don’t require insurance any longer.

Life insurance riders

In addition to choosing a life insurance policy type, you’ll want to consider any riders you may want to add to the policy. Riders offer additional benefits to your policy, such as accessing funds early or coverage for your family. Here are a few life insurance riders that you can add to your policy:

• Accelerated death benefit rider: If you receive a terminal diagnosis with a short-term mortality expectation, having an accelerated death benefit rider allows you to access some or all of your policy benefits while you’re still alive.
• Disability rider: A disability rider offers a specified monthly benefit amount if you become permanently and totally disabled. This benefit may only pay out for a certain amount of time and may be capped.
• Long-term care rider: If you end up in a long-term care facility, this rider can help pay for the monthly costs. Some policies pay the total cost up to a cap, while other policies pay a predetermined amount. These payments may reduce your death benefit in the policy, though.
• Waiver of premium rider: The waiver of premium rider can stop required premiums on your policy should you become disabled or lose your income due to injury or illness. Once you have a job again you’ll have to start making premium payments. These riders are usually dropped at retirement age.
• Return of premium rider: If you want to see some benefit from your policy without using it, this rider will return all or some of the premiums you pay into the policy. If you have a term policy and outlive it, you can receive some money back. With a permanent policy, you may be able to surrender your policy and receive your premium payments back.
• Child term rider: A child term rider offers term life insurance coverage for your child up to a specified amount. The coverage offers a small payout if your child dies while coverage is in force.

Not all of these riders are available on every type of life insurance policy. Each policy will come with its own set of riders. It’s important to review your policy options with an insurance broker or professional to find a policy that fits your needs.

Finding a life insurance company

Once you’re squared away what type of policy you desire, it’s time to get quotes and compare a few insurance companies. You’ll first want to make sure any company you get a quote from is reputable and financially solvent.

The easiest way to confirm that an insurance company can handle any claim is reviewing its A.M. Best rating (A.M. Best is a credit rating agency that focuses on the creditworthiness of insurance companies).

Once you find a few companies that are reputable and have solid financial footing, you’ll want to get quotes to compare rates and terms. It’s always a good idea to get at least three quotes from different companies to find the best policy and rate.

When comparing quotes, don't just focus on premiums, advised Ben Klesinger, co-founder and CEO of Reliant Assurance Brokers, which serves 42 states. He says a consumer should examine other factors, such as the policy terms, benefits and the insurer’s financial stability. For example, he said features like living benefits allow access to a portion of the death benefit in case of terminal illness, which can be a potential lifesaver for families.

“Also, consider the company’s reputation for customer service and claims processing. For example, our approach at Reliant Insurance Group ensures robust client support, adding significant value beyond mere cost,” Klesinger said.

If you don’t want to go through the hassle of finding the insurance company and policy yourself, working with a licensed insurance broker may be a good option. Brokers can work with several different insurers and bring you several policy quotes to compare.

And, finally, there are online tools that compare rates from multiple insurance companies for you. Tools like Policygenius let you input your information and life insurance needs and will help you find the best deal.

How to apply

Once you’ve chosen a life insurance policy, it’s time to apply. Here’s how to fill out a life insurance application.

1. Input your personal information

To apply, you’ll first need to fill out some personal information. This may include:

• Full name
• Address
• Phone number and email address
• Social Security number
• Driver’s license number
• Age
• Gender
• Marital status
• Job information

You may also be required to submit proof of address or a copy of your driver’s license, as well as financial details like your income and whether or not you own a home.

2. Share medical information

You will most likely be required to answer a few questions about your medical history and current medical information. This may include:

• Height
• Weight
• Current medical conditions
• Any prescriptions you’re taking
• History of medical conditions
• Familial history of medical conductions (such as cancer)
• Use of nicotine or tobacco products

This information is used to assess your health level and can directly impact your policy premiums. But it’s important to be as truthful as possible — lying on any portion of the application could prevent a life insurance policy payout.

3. Include other details

There may be additional details required to complete your application. In most cases you can fill this all out online, but you may be required to submit documentation as needed.

4. Get a medical exam (if required)

If you are applying for a policy that requires a medical exam (hint: most do), you will need to schedule it. This may include a blood draw and physical exam to determine your current health condition as a requirement for getting a policy.

5. Pay your premium

Once you’ve been approved, you’ll need to pay your first policy premium. Many policies offer monthly payments — but you may be able to elect annual payment or another payment schedule.

Choosing your beneficiary

Once your life insurance application is approved, you’ll need to choose your policy beneficiaries. It’s important to choose your beneficiaries wisely. Most insurance policies have a primary beneficiary and secondary beneficiaries. Your primary beneficiary is the person who will receive all of your insurance proceeds should you die, but if they can’t receive the funds, the proceeds will be directed to your secondary beneficiaries.

For example, if you’re married with two kids, you might name your spouse the primary beneficiary and your children as secondary beneficiaries. If you die, you can name your spouse as 100% beneficiary. If both you and your spouse die, you could split the insurance proceeds evenly between your two children.

It’s a good idea to give yourself time to think through how the insurance proceeds should be used and clearly communicate that with your beneficiaries. The goal of life insurance is to help replace your income and give your beneficiaries peace of mind.