What is online life insurance and how does it work?

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Online life insurance is a type of life insurance policy that is offered completely online. That means that the application process skips the phone interview and in-person medical exam that are often a part of getting a traditional term life insurance policy.

When buying a traditional policy, life insurance underwriters evaluate your background, medical history, and lifestyle choices during the phone interview and medical exam. But to get coverage from an online life insurance company, you simply answer these questions on the insurer’s online application. Generally, you’ll receive an application decision in 10 minutes to an hour.

Although you are providing your personal information to the insurer yourself, there is still no room to lie on the application. Like traditional insurers, online life insurance companies have access to databases that can inform them if you are telling the truth.

How does online life insurance work?

Aside from the application process, online life insurance works similarly to traditional term life insurance. Here are the steps to getting and maintaining your online life insurance policy:

Figure out how much life insurance you need: Most people need 10 to 15 times their income in coverage, but a financial planner can help you determine the exact amount.

Apply for coverage: Applying for a policy online generally takes less than 30 minutes. You will receive an application decision within the hour, if not immediately.

Determine policy details: You’ll need to name your beneficiaries and include their full names.

Pay your policy premiums: You’ll pay your premiums monthly or annually to keep your policy active. If you stop paying your premiums, your policy will lapse and you’ll no longer have coverage.

Update your policy with every major life event: Your beneficiary designations may need to change as you experience major life events, such as a marriage or divorce. Make sure to update your beneficiaries periodically so your policy protects the people you intended.

Tell your family about the policy: Make sure your beneficiaries know about the coverage so they can file a claim if you die. You should also leave behind written instructions with important policy details, like the policy number and insurer.

What does online life insurance cover?

Like most other life insurance policies, the payout from online life insurance can be used however the beneficiaries choose. For example, many people use the payout to cover:

College tuition
Childcare
Bills and everyday expenses
Mortgage or rent payments
Outstanding debts
Medical bills
End-of-life expenses

If you have a specific use for the payout in mind, you can leave written instructions for your beneficiaries in a will.

How is online term life insurance different than traditional term life insurance?

Online life insurance and traditional term life insurance mainly differ in the application process. While online life insurance only requires that you answer questions in an online application, many traditional term life insurance policies require a phone interview and medical exam to get coverage.

“Traditional life insurance policies often require extensive underwriting, including medical exams and lengthy paperwork. Online life insurance typically offers quicker approval processes, often with instant or accelerated underwriting based on digital data,” says Sean K. August, CEO of The August Wealth Management Group.

Generally, they offer similar coverage options, though online life insurance may be more limited in coverage amounts exceeding $1 million and in its diversity of term length offerings.

Another key difference between online life insurance and traditional term life insurance is that not all online life insurance policies offer a term conversion rider, which converts the term policy into a whole life insurance policy. However, some of the insurers which also offer whole life, do.

Who offers online life insurance?

Online life insurance is offered by many new tech companies, with tens of companies and policies on the market. Even with so many options for online life insurance available, you don’t have to go into the buying process blind. We’ve compiled a list of the best online life insurance companies to make the buying process a bit easier.

Some of the companies that offer online life insurance include:

How to buy online life insurance

To buy an online insurance policy, you go to the insurer’s website and begin an application. You will need to provide your personal details, such as your name, birthday, health history, and smoking status. You will also need to choose how much coverage you are applying for.

Most online life insurance companies offer you coverage within minutes, and some within an hour. Once you sign the electronic paperwork and pay your first premium, your coverage will be active.

Who should get online life insurance?

“People who want to avoid lengthy application processes and receive coverage quickly may prefer online options,” says August.

Applicants in moderate to great health are eligible for online life insurance coverage. And if you’re eligible, online life insurance is a great option for people who want to get insurance coverage quickly without sacrificing robust coverage or affordable prices.

However, some people with specific needs may be better off with a traditional life insurance policy. For example, if you’re a high-earner and need a policy with substantial coverage, online term life insurance may not provide you with the coverage you need. Instead, you’ll likely want a traditional policy that is medically underwritten. Or, if you have maxed out other investments, you may be better off with a traditional permanent policy like whole or indexed universal life insurance.

“People with complex estates and beneficiaries should stay away from [online] life insurance,” says Dennis P. Molinari II, owner of Molinari Insurance Agency.

Work with a financial advisor to determine the best options for your circumstances.

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