How to buy life insurance

Buying life insurance starts with deciding how much coverage your family would need to replace your income and pay off debts if you died. Next, choose between term life insurance, which covers you for a set period that usually runs 10 to 30 years, and whole life insurance, which covers you for your entire life.

Compare quotes from several insurers before you apply, since each company prices the same coverage differently and a lower premium stays locked in for the length of most policies.

Once you apply, the insurer reviews your health to set your final premium. Depending on your age, health, and coverage amount, that review may include a medical exam.

Many insurers also sell policies entirely online, with no medical exam. They use your answers to a health questionnaire along with records like your prescription history to approve you, often within days instead of weeks. These policies can come with lower coverage limits or higher premiums, so compare them with a traditional policy if you need a large amount of coverage.

Once you sign your policy and pay your first premium, your coverage becomes active.

 

How much life insurance do you need?

Life insurance replaces the income your family loses when you die. Your coverage amount should cover long-term financial needs, lost income, debt repayment, and everyday expenses. Most people need coverage equal to 10 to 15 times their annual income, though your exact amount depends on your specific debts and expenses.

Multiply your annual income by 10 to 15

An applicant earning $100,000 annually should purchase between $750,000 to $1 million in death benefits, according to John Buenger, senior financial manager and advisor at the Rice Agency. 

“This death benefit should be large enough to cover all of your final expenses and funeral costs, pay off debt that includes any outstanding mortgage balance, automobile loans, credit card debt, and student or education loans, and cover your loss of income for a significant number of years,” says John Buenger, senior financial manager and advisor at the Rice Agency.

Calculate the exact amount of life insurance you need 

Multiplying your income by 10 to 15 is a good starting point. For a number that fits your family better, work through these three steps:

1. Add up what your family would need. Start with your remaining mortgage balance and any debts, like auto loans, credit cards, and student loans. Then add funeral and final expenses, daily living costs (groceries, utilities, insurance), child care, and future college costs. This total is what your family would have to cover without your income.
2. Subtract what they already have. Count savings, existing life insurance (such as through work), and other assets that could cover those costs. What’s left is your coverage gap.
3. Add a buffer. Life changes, so build in extra room for things like a new baby, a bigger mortgage, or rising costs.

How to decide how much life insurance you need and how long a term to buy

Work through these questions to find a coverage amount that matches what your family would need if you died.

1. Who relies on your income and would struggle financially if you died? Think of your spouse, children, or anyone else who depends on your paycheck. If you have a partner and two kids under 10, your family would need years of income replaced, so you’d want a larger amount and a 20- to 30-year term that lasts until the kids are grown. If no one relies on your income, you may only need enough to cover debts and final expenses.
2. What debts and tax obligations would your estate leave behind? Add up your mortgage, car loans, credit cards, and any final expenses like funeral costs. That total is the minimum your coverage should cover, so your family isn’t left paying it off. If you have a large estate, ask a financial advisor whether estate taxes apply, since that could raise the amount you need.
3. Do you have existing savings or investments that could cover your family’s expenses, or does life insurance fill a necessary gap? Subtract what you already have, like savings and retirement accounts, from what your family would need. What’s left is the gap your policy should fill. For example, if your family would need $800,000 and you have $200,000 saved, you’d look for about $600,000 in coverage.

How to find the right type of policy for you

Once you have calculated how much coverage you need, you can decide what kind of policy would fit your needs best. The most popular ones are term and whole life coverage. Depending on your needs and budget, both can ensure that your loved ones can be taken care of. 

Here’s what they both entail:

• Term life insurance. “Term insurance pays only if death occurs during the term of the policy, which is usually from one to 30 years,” says Mark Friedlander, senior director of media relations at the Insurance Information Institute (Triple-I). Term life is cheaper and ideal if you need affordable protection for a specific period, like until your mortgage is paid off or your children are independent.
• Whole life insurance. Whole life covers you for your entire lifetime and builds cash value over time that you can borrow against. Premiums are significantly higher than term life, but you never lose coverage as long as you pay premiums.

Here’s how term and whole life insurance compare

What if you don’t qualify for traditional life insurance?

If you don’t qualify for a traditional term or whole life insurance, you can opt for final expense insurance as a last resort. It’s a small whole life policy meant to cover funeral costs and end-of-life expenses, and it costs far more per dollar of coverage than term or whole life. Consider it only if you can’t qualify for traditional coverage and don’t have savings to cover those costs. It comes in two types:

• Simplified issue: You answer a few health questions but skip the medical exam. Approval isn’t guaranteed, but it’s easier to get than traditional coverage.
• Guaranteed issue: Everyone who applies is approved, with no health questions or exam. Coverage is usually capped at about $25,000, and most policies have a two- to three-year waiting period. If you die of natural causes during that time, your beneficiaries typically get back only the premiums you paid, sometimes with interest, not the full benefit.

How to choose a reliable life insurance company

You can choose the right life insurance company by shopping around (either on your own or through an independent agent), checking financial ratings from agencies like A.M. Best, reviewing how they handle claims, and making sure you choose the right amount of coverage.

• Compare multiple insurers. Get quotes from at least three to five companies. Rates vary significantly even for identical coverage because each insurer evaluates risk differently.
• Verify financial stability. Check ratings from independent agencies like A.M. Best, Fitch, Moody’s, or Standard & Poor’s. These ratings indicate whether the company can pay claims for decades. Confirm the company is authorized to do business in your state through your state insurance department.
• Understand your policy. Read the entire policy before signing. Save all illustrations and materials. Know the guarantees and surrender penalties. Ask your agent about anything unclear.
• Check customer service and claims. Review third-party ratings from J.D. Power for customer satisfaction. Check your state insurance department for consumer complaints against the company.
• Avoid costly switches. Replacing policies in the first few years costs more due to surrender penalties. Don’t drop one policy for another without comparing both thoroughly.

How much does life insurance cost?

The cheapest life insurance companies for a healthy nonsmoker with $500,000 in coverage on a 20-year term policy charge between $502 and $543 a year, but how much you actually pay will vary based on your profile.

Below are term life insurance rates from some of the top life insurance companies:

How does a life insurance application process work?

You start by filling out a questionnaire about your health and lifestyle. Insurers check your answers against your records, so be honest. If something doesn’t match, they can turn down your application. If you hide that you smoke and later die from a smoking-related illness, they can refuse to pay your beneficiary.

What happens next depends on the insurer and how much coverage you want:

1. Answer health questions or take an exam. If you’re healthy, many insurers will approve you without an exam, based on your answers, your prescription history and your driving record. Others ask for a short exam, especially for larger policies. A nurse checks your height, weight and blood pressure and may take blood and urine samples or a cheek swab. Some insurers also ask your doctor for your medical records.
2. Wait for a decision. An underwriter reviews your application and decides whether to approve you and what you’ll pay. They also check the Medical Information Bureau, a database of information from past life insurance applications. Without an exam, you could hear back in minutes. With one, expect a few days to a few weeks.
3. Sign your policy and pay your first premium. Once you’re approved, the insurer sends your policy. Your coverage begins as soon as you sign for it and make your first payment.

How to get life insurance instantly online

Healthy applicants can get approved for life insurance online the same day, often within minutes, through an application that doesn’t require a medical exam. Instead of an exam, the insurer checks your health and driving history through records it pulls with your permission.

Younger adults increasingly prefer to buy life insurance online instead of meeting with a financial professional, according to the Insurance Barometer Study by LIMRA and Life Happens. Buying online lets you compare quotes whenever it suits you, without scheduling a meeting.

An online application replaces the exam with these records:

• Your MIB report: The Medical Information Bureau keeps information from your past life insurance applications, including health conditions you disclosed.
• Your prescription history: Pharmacy databases show the medications you’ve filled, which tell the insurer what conditions you’re treated for.
• Your driving record: Insurers check your motor vehicle report for DUIs, reckless driving and license suspensions.

Insurers offer their highest no-exam coverage limits to younger applicants. If something in your records needs a closer look, the insurer moves your application to traditional underwriting with a medical exam. You can still get coverage that way, but approval takes longer.

What to have ready before you apply for life insurance

Having this information ready before you start lets you fill out the application in one sitting and helps make sure your answers match the records the insurer checks.

• Personal details: Your full name, address, date of birth, citizenship, marital status, Social Security number and driver’s license number.
• Medical history: Health conditions you have now or have had before, any surgeries or hospital stays, and the names and contact information for your doctors.
• Medications: Every prescription you take, with the dosage for each.
• Family health history: Health conditions your parents and siblings have had, and the age and cause of death for any who have died.
• Lifestyle: How much you smoke or drink, any risky hobbies like skydiving or scuba diving, and plans to travel abroad.
• Finances: Your yearly income, net worth and current debts.
• Beneficiaries: The full name, date of birth and Social Security number of each person you want to receive the payout.

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