There's plenty on your plate — between work, family and everything else. So, finding time to think about life insurance can be hard. But it can be more than another thing on your future to-do list. Life insurance is a meaningful way to help protect your loved ones' financial future. Fortunately, getting life insurance doesn't have to be complicated. You can find the right coverage to help financially protect those you care about most by following a few simple steps.
What is a life insurance policy?
Life insurance is a contract between you and an insurance company. In exchange for paying your premiums on time, the insurer will pay out a death benefit to your designated beneficiaries (as long as your policy is in force) when you die.
Step-by-step: How to get life insurance
Now that you understand the importance of life insurance, here's a look at the process of securing the right policy for your needs.
Step 1. Decide if you need life insurance
Before diving into the specifics of life insurance policies and premiums, consider your personal and financial situation.
Do I need life insurance?
If you have people who depend on you, life insurance can help take care of them, even if the unexpected happens. Your beneficiaries can use your death benefit to cover some of the following:
- Loss of income — Your death benefit can replace lost income and help them maintain their standard of living.
- Debt — Life insurance can help pay off mortgages, cars or student loans.
- End-of-life expenses — Funerals and other end-of-life costs add up. Life insurance can help cover these expenses.
- Dependents — If you have children, aging parents or others who rely on you for financial support, life insurance can help ensure their needs are met.
Step 2. Determine how much life insurance you need
One of the first questions anyone exploring life insurance asks is, "How much life insurance do I need?" The ideal coverage varies from person to person, but you can start to get a general idea by reviewing your needs.
Here are some key questions:
- How will the loss of income affect your dependents? Can they cover basic living expenses without your income?
- Do you have outstanding debts that loved ones may have to pay?
- Do you want your death benefit to be used as an inheritance to leave a legacy to beneficiaries?
- Do you want to cover end-of-life expenses like funeral costs and not leave that to your loved ones?
- What are your long-term financial goals?
- Do you want to provide for a spouse's retirement or children's education?
Step 3. Determine which type of life insurance is right for you
Next, you'll want to know what type of life insurance you should get. There are two main types: term and permanent. Each offers unique benefits and considerations, so understanding their differences is essential.
Term life insurance
Term life insurance covers you for a period, often 10 to 30 years. It offers a straightforward, economical way to protect your family during critical times, such as when your children are young or you have a mortgage to pay.
Here are a few term life insurance options:
- Level term life — This is the most common type of term life insurance, offering a fixed death benefit and premium throughout the policy's term.
- Yearly renewable term — With this option, your coverage renews annually, but your premium may increase yearly as you age.
- Return of premium — This policy returns all or a portion of your premiums if you outlive the term, providing a potential money-back feature.
- Guaranteed issue — These policies provide coverage without a medical exam, making them accessible to people with health concerns, though they often have higher premiums.
Permanent life insurance
Permanent life insurance gives you lifelong coverage and may include a cash value component, which can grow tax-deferred over time. While generally more expensive than term coverage, it offers the flexibility to both protect your loved ones and be a financial tool for your future needs.
Here are a few permanent life insurance options:
- Whole life — This is the most basic type of permanent coverage, offering a guaranteed death benefit and fixed premiums for life.
- Universal life — This policy provides flexibility, allowing you to adjust your death benefit and premiums within certain limits.
- Indexed universal life — This policy is similar to universal life, but the cash value growth is linked to the performance of a market index.
- Variable universal life — This policy has the most flexibility, allowing you to invest the cash value in investment sub-accounts with higher growth potential and risk.
Step 4. Decide if you need life insurance riders
Life insurance riders are optional add-ons that enhance your policy coverage and provide additional benefits. They offer customization, allowing you to tailor your policy to specific needs, but with an additional cost. Here are some common life insurance riders:
- Accelerated death benefit — Access a portion of your death benefit while you're still alive if you're diagnosed with a terminal illness.
- Child life insurance — Provide a small amount of coverage for your children.
- Disability — Waive your premium payments if you become disabled or unable to work.
- Long-term care — Help cover the cost of long-term care services, such as nursing home care.
Step 5. Understand the factors that affect your life insurance rates
Several factors, often based on your assessed risk level by insurers, influence your life insurance rates.
Here are the most common:
- Age and gender — Generally, younger and healthier individuals qualify for lower rates.
- Smoking/nicotine use — Tobacco use significantly increases health risks, leading to higher premiums.
- Coverage length and amount —The longer the term and the higher the coverage amount, the higher the premiums.
- Health and family medical history — Pre-existing health conditions or a family history of certain illnesses can impact your rates
- Lifestyle habits — Engaging in high-risk activities like skydiving or extreme sports may lead to higher premiums.
- Occupation — Certain occupations, such as those involving hazardous environments or heavy machinery, can be considered higher risk and may result in higher premiums.
- Driving record — A poor driving history with multiple accidents or violations could indicate higher risk and affect your rates.
A healthy lifestyle can help reduce your life insurance premiums.
Step 6. Complete your life insurance application
Your life insurance application is what insurers use to issue your policy and determine your premium rates. The application will ask detailed questions about various aspects of your life, including:
- Personal information — Your name, date of birth, contact information, Social Security number and driver's license number.
- Health and medical history — Your current health status, preexisting medical conditions, past health issues, medications and your family's medical history.
- Lifestyle and habits — If you use tobacco, consume alcohol or drugs or participate in high-risk activities.
- Occupation and financial information — Details about your job, income and outstanding debts.
Completing the application accurately and honestly is crucial, as certain misrepresentations can lead to denied claims or even policy cancellation.
Complete your medical exam
Most insurers require a medical exam as part of the underwriting process. It typically involves checking basic health information and collecting samples for analysis. The results help insurers determine your health and risk level. It's also possible to get no-exam life insurance policies. These policies don't require a medical exam, making the application process faster. However, no-exam policies may have limitations on coverage amounts and higher premiums.
Choose your beneficiary
Once you've completed the application, you'll pick a beneficiary, the person or entity who receives your death benefit. You can name one or multiple beneficiaries.
Step 7. Buy your life insurance policy
Once the insurer reviews your application and medical exam, it will either approve it and offer you a policy or decline it. If you're denied coverage, you can appeal the decision, apply with another insurer or consider a no-exam policy.
If you agree to the terms of the policy offer, you'll sign the documents and make the first premium payment. This typically completes the purchase and activates your life insurance coverage.
Shopping for life insurance coverage
Before committing to a policy, shop around and compare quotes from multiple carriers. Each insurer has its own underwriting process and pricing structures, so rates can vary significantly. Getting multiple quotes helps ensure you see the best possible value for your coverage. Remember:
- Don't be afraid to ask questions during the process.
- Review your policy carefully once you receive it.
- Revisit your needs and adjust coverage if your circumstances change.
Buying life insurance: Frequently asked questions
Here are a few common questions about buying life insurance.
- Can you purchase a life insurance policy online? You can purchase a policy online. Many insurers offer online policy quotes and comparison shopping. You can apply online and, if approved, purchase coverage.
- Is getting life insurance worth it? Your death benefit can provide the people who depend on you with financial support and protection after you're gone, helping them pay expenses, cover debts and maintain their quality of life.
- What's the best age to get life insurance? Life insurance premiums are generally most affordable when you're young and healthy. However, it's never too late to get life insurance coverage, even if you're older and have some health concerns.
Review your financial situation, dependents and needs to help find the right coverage. Also, consider discussing your options with a qualified financial professional to better understand your coverage needs.
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