How to Buy Life Insurance

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Life insurance safeguards your loved ones’ financial future if the unthinkable happens.

The good news is that buying life insurance has gotten easier — you can purchase life insurance through an agent, broker or even online. Online and no-med policies have simplified and expedited the life insurance buying process.

Read on to learn how to buy life insurance, what the application process involves and how to get the most affordable policy. By performing your due diligence, you can save money on premiums and ensure a safety net for your beneficiaries.

How to buy life insurance

There are a few ways to get a life insurance policy:

Request life insurance quotes directly from a life insurance company’s website
Get life insurance quotes from an online quote aggregator site, which lets you compare multiple insurer’s rates
Contact a life insurance agent in your area

Going online is the easiest way to get life insurance quotes. You can do it from anywhere — all you need is your laptop or phone. But, building a relationship with an agent and broker can also be helpful.

“Nothing beats a trusted insurance agent whom you already have a relationship with. Ask what life insurance options they have available,” suggests Jonathan Voegele, agency vice president for the Central Region of COUNTRY Financial in Bloomington, Illinois.

Figure out what type of life insurance you need

There are two major types of life insurance: term and permanent life. Knowing which type is best for your needs is the first step.

One thing that they share is they both pay out a death benefit to beneficiaries, usually in a lump sum.

Term life insurance

Term life insurance lasts for a set number of years, such as 20 or 30 years. If you outlive your policy, your loved ones don’t get a death benefit when you die.

“Term insurance pays only if death occurs during the term of the policy, which is usually from one to 30 years,” says Mark Friedlander, director of Corporate Communications for the Insurance Information Institute in St. Johns, Florida.

With term insurance, you can choose either:

Level term: The death benefit stays the same throughout the period of time
Decreasing term: The death benefit drops, usually in one-year increments, over the course of your policy’s term.

Level term is the most popular and recommended type of term life insurance.

Permanent life insurance

A permanent life insurance policy lasts your entire life, as long as regular premium payments were made. It also comes with a cash value component.

Four types of permanent life insurance are:

Whole life: The death benefit and the premium stay the same throughout the life of the policy. Whole life also offers a cash value, which sets aside part of the premiums paid and lets you tap into the life insurance policy while you’re alive.
Universal life: With universal life, you can alter premium payments after you accumulate enough money in your policy’s cash value, as long as there’s enough money in the account to cover the costs.
Variable life: Combines the death benefit with a savings account that can be invested in stocks, bonds, and money market mutual funds. The value of the policy may increase more quickly depending on the investments, but that comes with more risk. If your investments don’t perform well, the death benefit and cash value may decrease, but some policies guarantee the death benefit won’t fall below a minimum threshold.
Indexed universal life insurance: Similar to universal life insurance, the cash value in indexed universal life insurance can be used to cover premiums. The cash value grows based on a stock index, but there are caps on how much you can ear. Likewise, if the market is doing poorly, there are floors on how much you can lose.

Determine how much life insurance you need

To help determine how much coverage you should get, think about the financial needs your beneficiaries will have if you pass away, including:

Mortgage
Future education costs
Loans
Everyday expenses
Child care
Funeral expenses

John Buenger, senior financial manager and advisor at the Rice Agency in Hagerstown, Maryland, says a good rule of thumb to follow is to purchase life insurance that will pay out 10 times your annual income in death benefits.

“An applicant earning $100,000 annually should probably purchase between $750,000 to $1 million in life insurance death benefits,” he says. “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/education loans, and cover your loss of income for a significant number of years.”

Manny Lirio, vice president of growth at Everydays, says it’s also crucial to consider your investments and liquid money that can be turned into cash within three months.

“The difference between your total expenses and total worth can help ensure that you are buying the right amount of coverage and not overinsuring yourself,” says Lirio.

Not sure where to start? Use our life insurance calculator to help you figure out how much life insurance you need.

Get life insurance quotes

Whether you request a life insurance quote online, over the phone, or in person, you can expect the process to be relatively short. You will be asked a series of brief questions related to your health, occupation, financial assets, and more.

You should get quotes from at least three to five insurers to make sure you’re getting the best possible price for your profile. Some insurers will charge you more than others, so make sure to compare costs.

After comparing quotes, you can submit an application to the insurer of your choice.

“Once approved, your policy is often issued within a few days and will be put into effect upon the insurance company receiving your first payment,” says Jake Irving, owner of Willamette Life Insurance in Beaverton, Oregon.

Premium costs vary based on many factors, including age, health and gender. Unlike other types of insurance, life insurance doesn’t consider your ZIP code when setting premiums.

How to compare life insurance quotes

Gather at least a few quotes from different life insurers so that you can make an apples-to-apples comparison.

To help narrow down the right policy, company, and price for you, Friedlander advises following these criteria:

Product: Choose a company that offers the policy and features that meet your needs.
Company identity: Make sure you know the full name, home office location, and affiliation — if any — of any insurer you consider.
Financial strength: “Life insurance is a long-term arrangement. There is no guarantee for life insurance policyholders similar to that provided for bank accounts by the Federal Deposit Insurance Corporation. So select a company that is likely to be financially sound for many years by using ratings from independent rating agencies, such as A.M. Best, Fitch, Moody’s, and Standard & Poor’s,” he says.
Market ethics: Find out if the company abides by the principles and codes of conduct of the Insurance Marketplace Standards Association.
Advice and service: Try to choose a company with a helpful, responsive, and attentive customer service department.
Claims: Check a national claims database to see what complaint information it has on a company. Visit the Better Business Bureau ratings page for the insurer. “Also, your state insurance department will be able to tell you if the company you are considering doing business with has had many consumer complaints,” Friedlander adds.
Cost: Realize that premiums can vary widely among companies.

What documents you need to buy life insurance

Several things are required to complete a life insurance application. Be sure to gather the following before applying:

Name, address, phone number, and date of birth
State/country of birth
Citizenship, gender, and marital status
Occupational status, including details of your job responsibilities and salary
Net worth
Driver’s license number
Social Security number
Health history information and physician contact information
Credit card or bank information for payment (when you are ready to purchase)

“Be as honest as possible during the application process. Most insurance companies have ways of finding out medical backgrounds. If their search does not match up with what you indicated in the application, your policy may get denied,” recommends Voegele.

Frequently Asked Questions

Which is the best life insurance company?

The best life insurance company for you is one that offers a policy that caters to your unique needs, not just one that quotes the lowest price. It pays to shop around among different carriers and research them carefully before making a decision — whether you’re looking for the most affordable or most comprehensive life policies.

To help guide your choice, check out Insure.com’s list of the Best Life Insurance Companies.

Why should I buy my own life insurance?

Life insurance can help your long-term financial strategy and offer protection for your loved ones. Also, life insurance provides income replacement if you were to die.

If you were to die, your family would be burdened not only with grief but potentially a mortgage, education costs, credit cards bill and other loans. Your loved ones won’t have you there to help pay those bills. So, you may find you need life insurance to offer you peace of mind and provide for your beneficiaries.

Buying life insurance for yourself can set into place a safety net for your loved ones if the unthinkable happens.

How can I buy life insurance for my parents?

Anyone with an insurable interest can create and purchase a policy for someone else, including their parents or grandparents.

However, they need to approve and sign off on the policy.

Erik Martin

Contributing Researcher

Erik J. Martin is a Chicago area-based freelance writer whose articles have been published by AARP The Magazine, The Motley Fool, The Costco Connection, USAA, US Chamber of Commerce, Bankrate, The Chicago Tribune, and other publications. He often writes on topics related to insurance, real estate, personal finance, business, technology, health care, and entertainment. Erik also hosts a podcast and publishes several blogs, including Martinspiration.com and Cineversegroup.com.