How To Buy Life Insurance In 7 Steps

Life insurance can be a confusing topic, which is partially why many Americans have difficulty purchasing a policy. According to the 2022 Insurance Barometer Study, about 42% of participants reported having little to no knowledge about life insurance, and 80% severely overestimated the cost of a life insurance policy. There are roughly 106 million adults who lack adequate life insurance coverage.

With many overwhelmed by the complexities of life insurance, it may be hard to determine whether life insurance is worth it.

RetireGuide broke down the process of buying a life insurance policy into seven steps.

It’s important to understand the details of each step, so you can confidently purchase the policy that meets your specific needs.

You may start to assess your needs for life insurance after a major life milestone, such as having a child, becoming a business owner or nearing retirement. You’ll need to account for potential future costs to determine the right level of coverage for your policy.

“First, determine how much coverage you need based on your individual life situation.” Linda Chavez, Founder & CEO of Seniors Life Insurance Finder told RetireGuide. There are five main factors to consider that go hand in hand with your needs: your age, health, income, debts and dependents.

Life insurance is a vital tool for everyone who is starting their financial plan, according to the Insurance Information Institute. Assessing your specific needs allows you to enjoy the benefits of life insurance and avoid accidentally spending thousands on a policy that doesn’t suit you.

There are two main life insurance policy types — term and permanent.

Term policies offer temporary coverage, typically in term lengths of 10 to 30 years. You have set premiums for the set term, and this type isn’t usually offered to those over 70 years old. Term premiums are also less expensive than permanent life insurance premiums, according to the Texas Department of Insurance.

Permanent policies, on the other hand, give you lifelong coverage with a cash value component that you can tap into while you’re alive. The cash value component can benefit those who consider using their life insurance policy as an investment.

There are two main types of permanent life insurance — whole life and universal life.

With a whole life insurance policy, your premiums and death benefit amount are fixed. But with a universal life insurance policy, your premiums and death benefit are flexible.

If you’re a high-risk individual or over 65 years old and have worries about your application being accepted, you could consider getting a guaranteed whole life policy. This type is typically more expensive for less coverage, but you’re guaranteed approval.

“Make sure to shop around and compare policies from different providers to find the best one that fits your needs and budget,” Chavez told RetireGuide. “Consider getting an independent life insurance agent to help guide you through the process. With their expertise and knowledge, they can make sure you find the right policy for you.”

You can get quotes for the same exact policy and coverage amount, and still get different pricing from different providers. Comparing quotes can help you from being overcharged. Compare three different quotes at minimum to confirm you’re getting the best price.

*Quotes were calculated for a healthy 50-year-old woman looking for coverage

You can typically get term policy quotes online, but you may be required to speak to an agent if you’re looking for permanent life insurance quotes.

No matter how good the quote is, confirm that the agent or company is licensed to sell life insurance. You should also check the company’s financial rating and complaint history for credibility.

Popular credit rating agencies include Moody’s, Fitch Ratings and Standard & Poor’s. You can check a company’s complaint history on the Better Business Bureau’s website.

Once you’ve selected a life insurance policy, it’s time to review the details carefully. Make certain the coverage fits your needs, the premiums are within your budget, you’re aware of potential fees, and that you understand any restrictions or exclusions.

This could be a good time to see if you want to add any riders to your life insurance policy. Life Insurance riders are additional benefits for your policy. While some riders are free, most typically increase your premium costs.

Dennis Shirshikov, a finance, economics and accounting professor at the City University of New York recommended several popular riders.

“There are several life insurance riders that can be valuable, depending on your needs. One popular rider is the waiver of premium rider, which covers your premium payments if you become disabled and unable to work,” Shirshikov told RetireGuide.

“Another useful rider is the accelerated death benefit rider, which allows you to access a portion of your death benefit if you’re diagnosed with a terminal illness.”

Apply for coverage by filling out a physical application or an online application. If you’re laddering multiple life insurance policies, you should consider getting assistance from a life insurance agent for a simpler process.

Whether you’re purchasing one policy or multiple, you’ll need to have your personal information on hand at the time of applying.

After applying for life insurance coverage, you may need to undergo a medical exam as part of the underwriting process.

The wait time for your life insurance application can vary between several hours to 60 days, depending on whether you have traditional underwriting or accelerated underwriting. The complexity of your policy can also influence these factors.

If your policy requires the traditional underwriting process, which includes a medical exam, and a blood and urine test, then approval typically takes 45 to 60 days.

Some life insurance policies, usually term policies, offer accelerated underwriting, which don’t require a medical exam. Instead, you’ll just need to answer a few health-related questions.

Make sure you answer honestly to avoid life insurance fraud. According to the National Association of Insurance Commissioners, accelerated underwriting can cut down approval wait times to several hours.

While it’s common to pay premiums monthly, some issuers offer options to pay quarterly, annually or semiannually. Choose a payment schedule that you can stick to and aligns with your budget.

If you don’t pay your premiums on time, your policy could lapse or be canceled. And if you were to pass away while your life insurance policy has lapsed, your beneficiaries typically won’t receive the death benefit.