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How To Get Life Insurance

Buying life insurance is actually surprisingly easy. Buying the right type of policy requires some forethought. First, narrow down what your goals are in buying life insurance so you can choose the right type of policy. After that, you can customize a plan to fit those goals and your budget.

This article will show you which types of policies are available and how they work. You will get an idea of price differences and requirements for the different types of policies as well as how to buy and pay for the life insurance that fits your needs.

How To Buy a Life Insurance Policy

Buying life insurance means deciding what type of coverage you want, how much coverage you need and how to get the best deal on the type of policy you've chosen.

There are plenty of options for life insurance, which is great because it allows you to tailor your life insurance coverage to your specific situation and goals.

By understanding your options, you can start to narrow things down to what you want and arrive at the right decision. Outlined below is a step-by-step process for doing that.

Compare the Best Life Insurance Providers

Step 1: Decide if You Need Life Insurance

This is a natural place to start, and the question of whether or not you should buy life insurance is not as simple as you might think.

Naturally, anyone with a family should seriously consider life insurance to provide for their needs. This is especially true if you have kids, but also applies if it's just you and your spouse or partner.

What may be less obvious is why you'd need life insurance if you're unattached. However, reasons a single person might consider life insurance include:

  • If your parents might need financial help as they get older, and you want to provide for them in case you aren't around to chip in

  • If you want to cover your funeral expenses or any other financial burden that might otherwise fall to someone else when you die

  • If there's a particular cause or charity you'd like to leave money to

Whatever your reasons, once you decide you need life insurance it's time to go onto the next step.

Step 2: Calculate How Much Life Insurance You Need

There are various ways to estimate how much life insurance you need, from a simple rule of thumb like seven to 10 times annual income to more involved calculations like the DIME formula, which considers the following:

  • Debt you owe

  • Income times the number of years you want a death benefit to cover

  • Mortgage debt

  • Education expenses if you'd planned to send you kids to college

Calculating how much life insurance you need is not an exact science. However, it can give you a good ballpark feel for how much coverage you should be considering.

Step 3: Determine Which Type of Life Insurance Is Right for You

Below are some different types of insurance you may consider. Here's how they work:

Term life insurance

Term life insurance applies for a set period of time, such as 10 or 20 years. That period is known as the policy's term.

If you pay your premiums and die during the term, the policy will pay a death benefit to your chosen beneficiary.

If you don't die during the term, the policy simply expires and you don't get anything in return. However, the fact that these policies don't always have to pay out makes their premiums more affordable.

May be right for:

A young parent with a limited income. A term policy can keep costs reasonable while covering your kids while they grow up.

Permanent life insurance

Permanent life insurance pays a death benefit no matter when you die, as long as you've kept the policy active by paying your premiums.

Permanent life insurance policies may also have a cash value that accumulates over time. You can cash this in or borrow against it if you need money later on.

There are a few different types of permanent life insurance, which will be described below.

May be right for:

Someone who can afford very long-term coverage, and is also interested in a cash value feature as a means of building savings.

Buying the right type of policy requires some forethought.

Whole life insurance

This is a type of permanent life insurance that lets you lock in your premium level for as long as you have the policy.

The cash value of a whole life insurance policy increases at a fixed rate, which is likely to be fairly low.

May be right for:

Someone who can afford very long-term coverage and is not interested in using the policy's cash value as a growth investment.

Universal life insurance

This is a permanent life insurance policy with more flexibility than a whole life policy.

A universal life insurance policy may let you adjust your death benefit and premium over time. For example, you may decide you can decrease your coverage as your personal savings grow.

Universal life insurance policies may also allow for more growth-oriented investment approaches for their cash value components.

May be right for:

Someone looking for long-term coverage that can change as their needs change. This might also help someone who is looking for more growth potential.

No-exam life insurance

Your health has a big impact on how risky the policy is to the life insurance company. Because of that, you'll often need to take a medical exam before getting coverage.

However, there are life insurance policies that are available without a medical exam. These may have fairly low coverage limits, and the premiums are likely to be higher than if you'd been examined and found to be healthy.

May be right for:

Someone who believes they may have health risks or someone who just needs a modest amount of coverage without spending a lot of time getting it.

Step 4: Decide if You Need Life Insurance Riders

An insurance rider, also sometimes known as an endorsement, is an add-on to an insurance policy. Think of it as choosing an option on top of a standard policy.

A rider will provide extra coverage under certain circumstances. This will usually cost you an addition to your premium but may be cheaper than getting an entirely separate policy just to cover certain situations.

Below are descriptions of some common forms of insurance riders.

Children's term rider

This is an addition to a parent's life insurance policy which pays a benefit in the event of the death of a child.

This additional coverage is usually for a small amount compared to the parent's policy. After all, you are not trying to replace an income, but simply to cover potential expenses associated with losing a child.

The coverage under this kind of rider is set for a term that is usually set to expire when the child is a young adult.

Accelerated death benefit rider

This is a rider that allows you to access a portion of your death benefit while you are still alive, for instance, if you contract a terminal illness or other serious medical condition.

Your policy might help you handle lost income or medical expenses due to a major illness. Keep in mind that any amount you withdraw under this kind of rider will be deducted from the death benefit the policy pays a beneficiary when you die.

Accidental death benefit rider

This is a rider that provides for an increased death benefit if the insured dies in an accident. It may also be known as a "double indemnity" rider because the death benefit may double in cases of accidental death.

This benefit does not apply in cases of suicide, an accident while under the influence of drugs or alcohol, or while engaged in an illegal activity.

Waiver of premium rider

This is a rider that allows you to maintain a life insurance policy without continuing to pay premiums should you become critically ill or disabled.

This may allow you to keep your life insurance in effect despite a loss of income or medical expenses which make it difficult for you to continue to pay premiums on the policy.

An insurance rider, also sometimes known as an endorsement, is an add-on to an insurance policy.

Step 5: Choose a Life Insurance Company

At this point, you've figured out what you want. Now, how do you buy life insurance?

There are a few different ways to get access to a life insurance policy. It helps to know some of the basics about different types of insurance providers, which are outlined below.

Life insurance agencies

While an insurance company is the organization that takes on the financial obligation of guaranteeing benefits in return for premiums, an insurance agency is an organization that is paid to sell those products to consumers.

An agency may represent either one insurance company exclusively, or it may work with a range of different insurance companies.

An agency that represents one insurer exclusively is known as a captive agency. By concentrating on one insurance company, an agency might be able to provide you with extra depth of knowledge about their pricing and may be able to process applications and claims more efficiently.

An agency that works with a variety of different insurers is known as an independent agency. This can have the advantage of presenting you with a broader range of product choices.

Life insurance agents

A life insurance agent works as a representative of one or more insurance companies. They are paid by insurance companies, and most or all of their income is likely to be based on how much insurance they sell.

In effect, you can think of life insurance agents as sales people for the companies they represent. However, a good life insurance agent should have specialized knowledge which can help guide you in understanding your choices.

Life insurance brokers

Life insurance brokers don't work for an insurance company. A broker is a go-between, in this case between consumers and insurance companies.

Since life insurance brokers aren't locked into representing any one firm, they may be able to present you with a broader, more objective choice of potential products.

Ultimately though, brokers and agents are paid commissions for completed sales, so neither one is completely objective. Also, while a broker may not be tied to any one insurance company, different products pay different commissions so their advice may be influenced by self-interest.

Tips for choosing a life insurance provider

Whether you're trying to decide which insurance company's policy to choose or pick an agent or a broker to work with, the following tips can help you make a more informed decision.

Read reviews

Consumers like you often post their opinions of different service providers online, so you have an opportunity to learn from the experiences of others.

Keep in mind that user reviews are not gospel. A person with a complaint may be more likely to post a review than a satisfied customer. On the other hand, many companies manipulate which reviews appear online.

Check company financial ratings

The financial standing of your insurance company is very important because you are relying on them to be sound enough to pay out benefits when the time comes.

There are a handful of ratings agencies that examine the financial statements of insurance companies and give them a grade based on how solid they are. It's worth researching this and choosing one of the higher-rated insurance companies.

Ask around for referrals

You may have friends and family that have been through the process of getting insurance, so they may be able to point you to a representative or company that they're especially happy with.

It may help to ask older contacts about this, because they may have longer experience dealing with an insurance provider. It's especially helpful to talk to someone who has been through the process of having a claim paid out by the insurance company.

Compare costs

Insurance is a competitive business. You may get a much better deal by shopping around. Reviewing competitive quotes for similar policies should be an important part of your decision-making process.

Check for discounts

Check to see if you qualify for any discounts. Do you have multiple policies with the same insurance company? You may earn a discount. You may also earn a discount based on your profession or something about your profile that indicates you are a lower-risk customer for the insurance company.

The financial standing of your insurance company is very important because you are relying on them to pay out benefits.

Step 6: Get Your Medical Examination

This can be a decisive part of the process of getting an insurance policy. Decisive because a favorable exam should mean paying lower premiums. On the other hand, if the exam reveals a serious health condition, it is likely to raise your premiums - or even get you turned down for a policy.

As noted earlier, there are no-exam policies available if your health is a problem. However, your coverage choices are likely to be more limited with a no-exam policy, and your premiums higher.

The medical examination step is a reason why it's a good idea to get life insurance when you're still fairly young and life-threatening conditions have had less time to develop.

Step 7: Wait for the Underwriting Results

Underwriting is the process by which insurance companies assess how risky it would be to insure a person. With life insurance, this will be based on your medical exam plus information you provided during the application process.

Underwriting will determine whether or not you are approved for a policy, and how much it will cost. You might use the time while you are waiting for underwriting results to research other options in case you don't like the answer you get from your first choice of insurance companies.

Step 8: Sign the Documents and Pay for Your Life Insurance Policy

It may sound like a technicality, but it's very important for you to read the life insurance policy carefully before signing it.

Life insurance policies contain a lot of details about conditions and exceptions that could impact benefits. Make sure none of these details is contrary to what you mean to accomplish by getting the policy.

At sign on, you'll probably have the opportunity to make payment arrangements.

Signing up for autopay may be a good idea. Having premiums withdrawn directly from your bank account could help you avoid missing a payment, which would discontinue the policy.

Also, ask whether you can get any sort of a discount by paying some of your premiums in advance.

Reviewing competitive quotes for similar policies should be an important part of your decision-making process.

How to Get Life Insurance FAQs

How much life insurance should I buy?

A life insurance agent or broker should be able to walk you through ways of calculating how much life insurance you need. They should also be able to explain what type of future life events might be a good cue to take a fresh look at how much life insurance you need.

Is it worth it to buy life insurance instead of just setting aside money on my own?

If everything goes right, you could just save and invest money over time to build up a reserve your family could live on when you die. However, this assumes you live long enough to accumulate enough money, and that your investments work out. The point of insurance is to protect against the possibility of something going wrong.

Can you purchase life insurance online?

Yes, especially if you don't want a full-underwriting policy that requires a medical exam. However, this may not be the most cost-effective option. Even so, there are key parts of the process, including gathering information and getting quotes, that can be accomplished online.

Start the Process of Buying Life Insurance

There are several steps to getting life insurance, but each one can be accomplished fairly simply by following the steps in this article. If you already know which type of life insurance policy you want, it's time to compare rates and speak to a few agents. To get multiple free quotes, just enter your zip code below and answer a few questions for an estimate.

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