How to Buy Life Insurance

How to Buy a Life Insurance Policy:

1. Decide How Much Coverage You Need

Determining the amount of coverage needed is the first step in purchasing a life insurance policy. The coverage limit that is right for you will depend on your reason for buying a life insurance policy. If you want coverage to provide financial protection while you pay down a mortgage, for example, you may only need enough coverage to allow your beneficiary to pay the loan balance.

How to Buy Life Insurance: A Clear and Confident Guide

If you want coverage to replace your lost income for your loved ones for many years, you probably need a higher death benefit. One popular method for calculating the coverage limit is the DIME formula, which takes into account your debt and final expenses owed, total income based on what might be needed after your death, the amount left on your mortgage, and any outstanding or expected expenses for your dependents’ education or schooling.

2. Pick a Life Insurance Policy Type

There are two main types of life insurance: term and permanent. Term life insurance provides coverage over a specific term period, usually between 10 and 30 years, while permanent life insurance is a type of coverage that provides lifetime protection as long as you continue to pay the premium. Within permanent insurance, the two primary types are whole life insurance and universal life insurance. Before purchasing a policy, it is important to do research to find out which option will best meet your needs.

3. Research Different Life Insurance Carriers

When choosing a life insurance company, search the website and look at the policy options. The best life insurance company for you may offer a combination of coverage options that fit your insurance needs and a positive customer service experience. You can get an idea of a company’s level of customer service by reviewing J.D. Power studies for life insurance. Check for a company’s financial strength by reviewing ratings from AM Best, S&P, and Moody’s. You may also want to research and compare different life insurance riders, which are add-on coverage options that could give you a broader range of protection.

4. Request and Compare Life Insurance Quotes

Once you have selected a handful of potential providers, you can get quotes from each company. Most companies do not include the price of premiums on their website because rates are highly dependent upon your personal and health metrics. Getting quotes may help you determine which provider can give you the most affordable rate. When you request to receive a quote, you will typically be asked to provide some personal information, including your age, address, and gender. Additionally, you will likely need to submit basic information about your medical history.

5. Fill Out the Application

After choosing the provider that fits your needs, the next step is to fill out an application. You will be required to include basic personal information, as well as your Social Security number and driver’s license number. Additionally, you might need to submit an Attending Physician Statement (APS), which helps the insurance company verify your medical history.

6. Prepare for Your Phone Interview

After submitting an application, the insurance company might require a secondary phone interview. The interview is mostly used to confirm the information you included on the application, but there may be some additional questions asked. For example, the interviewer may want to know more about your lifestyle and hobbies, your financial health, your income, and any other life insurance policies you have.

7. Schedule a Life Insurance Medical Exam

Many life insurance companies and policy types require applicants to get a physical exam before they can be approved for coverage. The life insurance medical exam is like a regular doctor appointment, but the insurance company’s medical examiner may be able to visit your home or office to see you.

8. Wait for Approval

After completing the application and medical exam, you will need to wait for approval. The length of time it takes to receive approval can vary depending on the insurance company and the policy type. Once approved, you will receive a policy contract that outlines the terms and conditions of the policy.

Other considerations when shopping for life insurance

When shopping for life insurance, there are several factors to keep in mind in addition to the coverage amount and premium. Here are some other important considerations to keep in mind:

  • Licensing: Before buying life insurance, it is important to ensure that both the insurance company and agent are licensed to sell life insurance in your state. You can verify their status by conducting a licensee search with the department or division of insurance in your state.
  • Riders: Life insurance policies often come with riders that provide additional benefits, such as a return of premium rider or child term rider. When choosing a life insurer, it is important to check if they offer riders that suit your specific needs. However, adding riders can increase the premium, so it is important to consider how it affects the coverage you can afford.
  • Financial goals: It is important to consider how your death could impact your family’s financial goals. If a significant portion of your income is used to make progress towards financial goals, then it is important to ensure that your life insurance coverage is sufficient to maintain that progress.
  • Employer-sponsored coverage: If you have life insurance through your employer, it is important to verify if it provides enough coverage for your family’s financial needs in case of your death. If not, you may need an additional form of coverage. Also, keep in mind that employer-sponsored policies generally become inactive once employment ends.

Frequently Asked Questions

Factors to Consider When Buying Life Insurance

When buying life insurance, there are several factors to consider. Some of the most important factors include the amount of coverage needed, the length of coverage, the type of policy, and the premium cost. It is also important to consider the financial stability and reputation of the insurance company.

How Does Life Insurance Work?

Life insurance is a contract between the policyholder and the insurance company. The policyholder pays a premium in exchange for a death benefit that is paid out to the policy’s beneficiaries upon the policyholder’s death. The amount of the death benefit and the premium cost are determined by several factors, including the policyholder’s age, health, and lifestyle.

At What Age Should You Consider Buying Life Insurance?

It is recommended that individuals consider buying life insurance as soon as they have dependents who rely on their income. This could be as early as in their 20s or 30s. The younger an individual is when they purchase life insurance, the lower their premium cost is likely to be.

Can You Purchase Life Insurance Directly?

Yes, it is possible to purchase life insurance directly from an insurance company or through an online insurance marketplace. However, it is important to note that purchasing life insurance directly may limit the options available and may not provide access to the best rates or policies.

What Are the Different Types of Life Insurance Policies?

There are several types of life insurance policies, including term life insurance, whole life insurance, universal life insurance, and variable life insurance. Each type of policy has its own benefits and drawbacks, and the best type of policy for an individual will depend on their specific needs and circumstances. You may want to look into Indexed Universal Life Insurance because it offer a death benefit and tax free accumulation for retirement.

What Are the Benefits of Buying a Whole Life Insurance Policy?

Whole life insurance is a type of permanent life insurance that provides coverage for the policyholder’s entire lifetime. One of the main benefits of buying a whole life insurance policy is that it builds cash value over time, which can be borrowed against or used to pay premiums. Additionally, whole life insurance provides a guaranteed death benefit, which can provide peace of mind to the policyholder and their beneficiaries.

Martin Hamilton

Martin Hamilton is the founder of Guiding Cents. Martin is a Writer, Solopreneur, and Financial Researcher. Before starting Guiding Cents, Martin has been involved in Personal Finance as a Mortgage Planning Consultant, Licensed Real Estate Agent, and Real Estate Investor.

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