If you have family members depending on you for financial support, it could be a good idea to get a life insurance policy. But you may have put off getting coverage because you thought it was too much work or too expensive.
The truth is, life insurance may be more affordable than you think. According to the LIMRA and Life Happens 2020 “Insurance Barometer” study, more than half of the population thinks term life insurance is over three times more expensive than it actually is.
If you’re researching how to buy life insurance, here’s what to know about your options and the application process.
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How to buy life insurance: 7 helpful tips and strategies
Shopping for insurance may feel intimidating, but purchasing a policy doesn’t have to be time-consuming or invasive. Here are seven tips that can help you find the right policy for you:
1. Consider a term life insurance policy instead of permanent life insurance
There are many different types of life insurance to choose from:
- Term: Term life policies cover you only for a specified period of time, typically ranging from 10 to 30 years. If you pass away for a covered reason within the policy’s term, your beneficiaries may receive the policy payout amount.
- Whole: Unlike term life insurance, whole life insurance policies provide permanent coverage. Your beneficiaries may receive a benefit when you pass away, but your policy might also accumulate cash value over time. You can choose to borrow against that cash value to pay for major expenses or opt to use it later on to supplement your retirement fund.
- Universal: Universal life policies are a form of permanent coverage, but they typically offer more flexibility than whole life policies. Within certain guidelines, you may be able to determine the amount and frequency of premium payments, and your policy might accumulate cash value.
- Variable universal: Variable universal policies provide you with permanent coverage. They also have a savings element that you can invest in. While variable universal policies have the potential for cash value growth, they may also come with more risk since your investments can fluctuate in value.
While many people opt for permanent life insurance policies — which last for your lifetime — term life policies could be a useful alternative.
When deciding between term vs. whole life coverage, consider that term life insurance is temporary. Since it only provides coverage for a specified term, it tends to be much cheaper than permanent life policies. Depending on your situation, temporary coverage might be sufficient for your family’s financial needs.
For example, if your children are in high school and you want a policy that could help to cover the cost of their college education and living expenses if you die, a term life policy that covers you for the next 10 years may be enough coverage for you. Once they’re living on their own and working, they might not need your financial support or your life insurance policy’s benefit.
2. Research how much life insurance coverage you'll actually need
When you apply for life insurance, you can typically choose what level of coverage you want. Insurers often sell life insurance policies with benefit amounts ranging from as low as $5,000 to over $10 million, depending on the company and policy you choose.
It’s easy to underestimate how much coverage you need, and you may be tempted to choose a lower coverage amount to get a smaller premium. However, purchasing a small policy might put your family at risk financially if you pass away.
While everyone’s needs and financial situations are different, industry experts typically recommend purchasing a policy with a death benefit equal to 10 to 15 times your annual income. If you make $50,000 per year, that means you might want to consider applying for a policy with a benefit amount of $500,000 to $750,000.
When thinking about how much coverage to get, consider these questions:
- Who is dependent on you for income?
If you have a spouse, parents, siblings, or children who rely entirely on you for financial support, you’ll likely need enough coverage to provide for their needs. For example, if you have young children or a parent in an assisted living facility, you might need more coverage than if you only have adult children who earn their own income.
- What expenses will your beneficiaries have?
Besides your funeral costs, your family members would likely have to pay for housing, utilities, food, clothing, and other essentials. They might also have to pay for education expenses and health insurance premiums if they got coverage through your job. If you have a large mortgage or your children aren’t yet in college, it may be a good idea to consider a larger policy to help offset their costs.
- Are you the primary wage earner?
If you’re the primary wage earner and die, your spouse could have difficulties making ends meet. They might have to get a new job or go back to school to increase their earning potential. If that’s the case, you might need a more substantial policy to help pay for their living expenses.
3. Opt for a flexible life insurance policy
Your life insurance needs might change over time. Whether you have a dependent that becomes chronically ill or your child gets into a pricey college, you could find that you need more coverage or a different type of insurance.
When looking for a policy, consider insurers that offer insurance endorsements or riders that allow for flexibility. For example, some companies could have the following optional riders:
- Guaranteed insurability rider: With this rider, you have the option to purchase additional insurance during specific times or at certain life events, such as when you get married or have a child, sometimes without having to go through another medical exam. This option might be useful if you’re unsure what the future holds; if you have children, buy a home, or a dependent needs medical care, you could choose to purchase a larger policy without undergoing the whole application process again.
- Convertible term coverage: If you have a term life policy with a convertible rider, you could opt to convert your policy to permanent coverage, sometimes without having to go through another medical exam. For example, you might get diagnosed with a health issue that could make getting another term life policy difficult. With the convertible term rider, you could potentially convert your existing policy to permanent coverage to last for your lifetime.
4. Consider both online insurers and more traditional companies
With traditional life insurers, you typically have to work with a life insurance agent, fill out a life insurance application, and undergo a medical exam for fully underwritten policies. The process is often extensive and takes weeks to complete.
If you’re concerned that getting life insurance coverage from a traditional insurer is too much of a hassle, consider purchasing insurance from an online insurer. Most offer simplified coverage, and some don’t require a medical exam to obtain coverage. For instance, Bestow allows qualified individuals to apply for life insurance online in just a few minutes without a medical exam.
5. Work with an insurance agent or financial professional
If you don’t know how to buy life insurance or are overwhelmed by your options, working with an insurance agent or financial professional might be a smart solution.
An agent or financial professional could help you calculate your coverage needs, discuss your long-term goals, and decide which type of life insurance is best for you. If you have existing health issues, a trained professional might be able to help you get the coverage you need.
Most insurance agents and financial professionals work on commission, but some work on a fee-only basis.
6. Look into life insurance through your employer
Many employers offer life insurance to their employees. Employer-sponsored life insurance, also known as group life coverage, tends to be less expensive than individual policies. And, your employer may even cover some or all of your premiums, depending on the company and plan structure.
However, group life policies tend to have limits on coverage amounts. They typically cap your benefit amount to one to three times your salary, which could be less coverage than you need for your family’s expenses. Group life policies can be useful, but you might also need a supplemental life insurance policy to get adequate coverage.
7. Assess the insurer’s financial health
Before signing an insurance contract and handing over your hard-earned money, it’s important to check the insurance company’s financial stability. You want to find a company that is financially sound, expected to meet its contractual and policy obligations, and likely to remain in business for decades.
AM Best, Fitch, Kroll Brand Rating Agency, Moody’s, and Standard and Poor’s are all independent credit rating agencies that evaluate the financial health of insurance companies. Each one has its own scale for rating companies:
- AM Best: Financial ratings range from A++ (Superior) to D (Poor). In general, it’s a good idea to look for a company with a rating of A- (Excellent) or above.
- Fitch: Fitch’s ratings range from AAA to D. Companies with an AAA rating have the highest rating and are considered likely to honor their policy commitments.
- Kroll Brand Rating Agency: The Kroll Brand Rating Agency’s ratings range from AAA to D. Companies that get a rating of A, AA, or AAA can generally weather difficult economic conditions.
- Moody’s: Moody’s long-term ratings range from Aaa to C. Companies with a rating of A to Aaa are typically considered financially sound.
- Standard and Poor’s: Standard and Poor’s scale ranges from AAA to D. Companies with a rating of A and above generally have a strong capacity to meet their financial commitments.
Is life insurance worth it?
If you’re trying to decide if life insurance is worth it, consider the following information:
- The National Funeral Directors Association reported that the median cost of a funeral with a viewing and burial was $7,640 as of 2019. Your beneficiaries would likely have to cover the cost of your final expenses before even thinking about their own living expenses or education costs.
- In LIMRA’s study, 44% of respondents said they’d feel a financial impact within six months if the primary wage earner died.
Life insurance can be surprisingly inexpensive, with certain policies costing as little as $10 per month. The peace of mind you might get from having life insurance coverage may be well worth the expense.
How much does life insurance cost?
When it comes to life insurance premiums, the average cost of a $250,000 term life policy for a healthy 30-year-old is $160 per year, according to the LIMRA “Insurance Barometer” report.
However, your life insurance premiums are dependent on many factors, including:
- Age: In general, the younger you are, the lower your premiums.
- Health: Insurers often look for issues such as high blood pressure or high cholesterol. If you have pre-existing conditions, such as heart problems, you could pay a higher premium or struggle to get approved for coverage.
- Habits: If you smoke, your premiums will most likely be significantly higher.
- Weight: Insurers typically reserve their lowest premiums for people with ideal body weights. You might still be able to get coverage if you are overweight, but you’ll likely pay a higher premium.
- Location: Your location plays a big role in your costs. If you live in an area with a high cost of living, your premiums might be higher than if you lived in a rural area.
- Insurance company: Premiums can vary widely from company to company, so it’s a good idea to get life insurance quotes from multiple insurers. To help you get started, here are our picks for the best life insurance companies for 2021.
- Type of policy: The type of life insurance you choose can also affect your policy premiums. For example, a whole life policy will typically cost more than a term life policy with the same benefit amount. If you add optional riders to your policy, that might also increase your premiums.
At what age should you buy life insurance?
Ideally speaking, buying life insurance when you’re young is a good idea. As you age, your premiums will likely increase. And, you’re also more likely to develop health issues as you get older, which could make it more difficult — and more expensive — to purchase life insurance.
For example, we got quotes from a popular online insurer for $1 million in term life coverage for three women with identical heights, weights, and locations. The only difference between them was their ages: 25, 35, and 45. With this particular insurer, a 45-year-old woman will pay more than four times what a 25-year-old woman will pay for the same amount of coverage.
|25 Years Old
|35 Years Old
|45 Years Old
|*Quotes are based on $1 million term life policies with 10-year terms. Premiums are based on women in the normal range for weight.
If you’re not in your 20s or 30s anymore and still haven’t purchased a policy, don’t let that prevent you from getting coverage. Getting a policy sooner, rather than continuing to wait, allows you to lock in today’s premiums.
What is a life insurance medical exam like?
When you apply for certain fully underwritten life insurance policies, you may need to undergo a medical exam as part of the underwriting process. The medical exam might be in a doctor’s office, or a healthcare professional could come to your home. The exam usually includes the following:
- Measuring your height and weight: If you have a body mass index (BMI) in the healthy range, you’ll typically have lower premiums than someone who is overweight or obese.
- Taking your blood pressure: The healthcare professional will typically check your blood pressure to determine if you are at risk of developing hypertension.
- Blood and urine samples: Blood and urine samples might be sent to a lab to test them for high cholesterol, sexually transmitted diseases, and irregular blood cell counts.
- Questions about your health: The healthcare provider will typically ask you about your medical history, such as past hospitalizations, current prescription medications you take, and chronic health issues.
The bottom line
Learning how to buy life insurance might be easier than you may think. By understanding your different policy options, insurers’ underwriting requirements, and typical costs, you can make an informed decision and choose the right life insurance plan for you. Plus, you can enjoy peace of mind knowing that your loved ones might be taken care of if you aren’t around to provide for them.
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