How to Get Life Insurance- There are many options to choose from when buying life insurance. But sometimes, the more options there are, the more challenging it is to make a choice.
Understanding the steps involved in getting life insurance will help simplify the process and make it easier to get the coverage that suits you best.
1. Assess Your Need for Life Insurance
To determine if you need life insurance, consider the financial impact your death would have on your dependents. What would life look like for them without your income? Will they have the financial resources to cover your end-of-life expenses? Will they have a mountain of debt to pay off?
Next, assess what resources you have in place to support your dependents. This would include an emergency fund, retirement savings, and any life insurance coverage you currently have. If there are gaps between what you have and what your loved ones would need to maintain their standard of living, you need life insurance.
Consider working with a financial planner to discuss what needs you should cover with life insurance whether it’s a mortgage that will need to be paid, children who will need to be supported, a small business to maintain, or a legacy you want to leave.
2. Calculate How Much Coverage You Need
People often underestimate how much life insurance they need, says Adam Winslow, CEO of Direct Line Group. They tend to think only about how much would be required to pay off their major debt, such as a mortgage. However, they should consider how much more would be needed to help a spouse or partner pay bills, support children, pay for college tuition, or cover any other long-term needs, he says.
Here is a list of costs to consider when you’re deciding how much life insurance you need.
- Bill payments.
- College tuition costs.
- Costs of raising children.
- Debt payoff balances.
- End-of-life costs.
- Living expenses for dependents.
One rule of thumb is to have a policy with a death benefit equal to 10 times your annual salary. But your situation and financial goals might require that you have more or less than that amount. A life insurance calculator is a good starting point for an estimate, and then a financial planner can help you develop a more precise figure.
3. Decide on the Life Insurance Policy Type
There are two main types of life insurance: term life insurance and permanent life insurance. And there are several subtypes of permanent life insurance to consider.
Term Life Insurance
Term life insurance has a level term period when rates stay the same. After this period, you can renew the policy, but at much higher rates each year. Choices of coverage lengths are generally 5, 10, 15, 25 or 30 years. Term life is usually the cheapest way to buy life insurance and is ideal if you need coverage for a specific timeframe or debt.
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. Whole life is good for people who want permanent coverage with guarantees and have a large budget for life insurance.
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.
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 the term, whole, and universal life policies. Depending on the type of underwriting, no-exam options may or may not be low-cost. The best no-exam life insurance rates are offered to younger buyers (below 50) in good health.
4. Determine if Life Insurance Riders Are Necessary
Life insurance riders are add-ons to a life insurance policy providing extra coverage or benefits. Some policies include specific life insurance riders, and others must be added at an additional cost. Since riders are likely to increase your costs, carefully consider whether customizing your policy with riders will be worth it.
Here are some common riders:
- Accelerated death benefit rider.
- Child life insurance rider.
- Disability rider.
- Early-enhanced cash value rider.
- Estate protection rider.
- Guaranteed insurability rider.
- Lapse protection rider.
- Long-term care insurance rider.
- Overloan protection rider.
- Return of premium rider.
- Spouse life insurance rider.
- Term life insurance conversion rider.
- Waiver of premium rider.
5. Understand What Factors Affect Your Life Insurance Rates
The two key factors life insurance companies consider when determining the rate, you pay for coverage are health and age. The younger you are when you buy life insurance, the cheaper it will be because you have a longer life expectancy. But there are various other factors insurers consider, too.
Here are the main factors that affect the cost of life insurance.
- Age and gender
- Smoking/nicotine use
- Coverage length and amount
- Health and family medical history
- Drug and alcohol use
- Occupation and any high-risk hobbies
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