How To Get Life Insurance: Everything You Need To Know
Purchasing a life insurance policy can be intimidating, especially for first-timers. There are so many factors to consider: the cost of premiums, the coverage amount, the type of life insurance insurance policy you need, and more.
In this step-by-step guide, we'll show you how to get life insurance and we’ll help you decide which type of life insurance best suits your needs. We'll also break down the process so you can pick the right insurer, compare quotes, and find the best rates.
Why Should You Get Life Insurance?
Life insurance is a contract that provides financial protection for you and your family. If you die while insured, the money from your life insurance policy (called a “death benefit”) can support your loved ones for a few years while they recover from the loss.
Depending on the life insurance plan you buy, you may also get living benefits under specific circumstances. These benefits can replace/supplement your income if you become disabled.
Who Needs Life Insurance?
Before you get a life insurance policy, it’s important to figure out if you actually need insurance in the first place. Below are the groups of people who can benefit the most from this product.
Parents With Young Children
Parents with young children need life insurance more than anyone. Unless you have enough savings in your bank account to act as a windfall, you'll need life insurance to provide you and your family with some form of financial protection in case the worst happens. Your life insurance money can help your family pay for funeral expenses, the mortgage, and even your children’s education – long after you’re gone.
Young Adults With Credit Card Or Student Loan Debt
Even if they're not parents, young adults with debt should try to get a life insurance policy. If you have personal loans, student loans, or credit card debt, you’ll want life insurance that can help your family pay your outstanding dues.
Small Business Owners
Some life insurance products are designed to provide coverage for business owners. The business can use the death benefit to hire new management or cover severance payments.
Older adults without savings may also benefit from getting life insurance coverage. Their policy can help pay for their funeral/cremation expenses as well as pay off any outstanding debts.
Step-By-Step Guide To Buying Life Insurance
Getting life insurance is a long-term financial decision that requires careful consideration. To learn how to buy life insurance that best suits your goals, read this step-by-step guide.
1. Find An Independent Insurance Agent
Independent agents can help you compare life insurance quotes from the best life insurance companies and find the right plan for you.
You should look for the following when choosing an agent:
Licensing: Check if the agent is licensed to practice in your state.
Credentials: Look at the agent’s designations or credentials, especially from accredited associations. Find out what they needed to do to earn those credentials.
Complaints: Call your state's insurance department or contact the Better Business Bureau. Check if the agent and the life insurance company they're working for has had many complaints in the past.
2. Determine The Insured Amount
Before you buy life insurance, you have to get a better idea of how much coverage you need. Coverage refers to the amount your beneficiaries can claim from the insurance company upon your passing. We’d recommend an amount that’s 10 to 15 times your annual income – this ensures that your family won't be too financially burdened after your death.
Mortgage rates, credit card loans, student loans, and personal loans should also be a factor in calculating your insured amount. If your insured amount covers these debts, then you don’t have to worry about leaving your loved ones with the responsibility of paying them off.
Add up all of your financial obligations to see how much money you'll need to replace your income once you're gone. If you're having trouble determining the right amount, you can opt to consult a financial advisor.
If you don't have a separate insurance policy for your burial or memorial service, your final expenses should also be factored into the coverage you get. In 2019, the national median cost of an adult funeral (viewing and burial) is $9,135.
Keep in mind that some companies provide free group life insurance for their employees. If you are already covered partially by your employer, you can subtract this amount from the total amount of insurance you'll need to buy as an individual.
3. Choose A Type Of Life Insurance Policy
An agent can help you choose from some of the most common types of life insurance. Be sure to consider the following when making a decision:
Length of the term: Not everyone needs insurance for their entire lives. Most people will only need it for 10-30 years, or at least until their children are independent. But if you have dependents who need support from you for years after you pass away, then you may need lifetime coverage.
Life insurance rates: The best life insurance is the one that you can afford. After all, if you stop paying premiums, you lose coverage altogether. If you're low on cash, it's better to go for more low-cost options like a term life insurance policy.
Risk tolerance: Some types of life insurance have a cash value component that can accumulate interest and grow. Whole life insurance cash value accumulates interest at a steady rate, while variable life insurance will grow at a varying rate depending on how you choose to invest. If you want an investment component, make sure to choose a policy that grows at an interest rate that you're comfortable with.
Health requirements: Most life insurance companies require you to take a medical exam before issuing a policy. If you have health issues that will prevent you from qualifying for whole or term life insurance, you can look for guaranteed-issue or guaranteed-acceptance policies instead.
Below are two of the most common life insurance products:
Term Life Insurance
Term life insurance is a type of policy that expires after a certain time period. The term length can be anywhere from 1 to 30 years. Once it expires, you can opt to renew it or let it end completely.
Compared to other types of insurance, term life insurance policies usually have lower premium rates. That's because they only provide coverage for a certain time and don't build a cash value.
Permanent Life Insurance
Permanent insurance policies cover you for your entire life, as long as you keep up with the premium payments. Most of these policies also accumulate cash value, which grows the same way as savings accounts – through interest.
There are four main types of permanent life insurance:
Whole life insurance: Whole life insurance is considered the most basic and traditional form of permanent insurance. For this policy type, you'll pay a premium monthly or annually and get a fixed benefit for the rest of your life.
Universal life insurance: Universal life insurance policies come with a flexible premium and benefit. You can pay less or more as your financial situation changes.
Indexed life insurance: This policy is similar to universal life insurance, except that the cash value's interest is based on stock market indexes. This is higher risk but also a higher potential reward.
Variable life insurance: Same with universal life insurance, this type of policy comes with a flexible premium and death benefit. You get to choose what you invest the cash value in, so it’s a great choice for people who are financially savvy and want to be more hands-on.
4. Select Insurance Riders
Life insurance policies can come with "riders" or optional add-ons. Keep in mind that the riders that are available to you depend on your insurer and the type of policy that you get. Common riders include:
Accidental death rider: With this rider, the beneficiaries receive an additional payment if the insured person dies in an accident. Some insurance companies even offer to pay double the insured amount.
Guaranteed insurability rider: This lets you purchase additional life insurance without having to go through a medical exam or answer additional health questions. So, if you develop a health condition over the years, you won't have trouble renewing a policy or adding to your insured amount.
Waiver of premium rider: If you get this rider, your future premiums will be waived in the event that you become permanently disabled or injured. This rider can be quite useful if you lose your job due to disability/dismemberment and can no longer pay your premiums.
5. Compare Quotes From Different Life Insurance Companies
Once you've identified a qualified insurance agent and determined the amount of insurance you need, you can begin comparing life insurance quotes.
Some websites post premium rates online, but it's best to get a quote for your specific situation. Your health, age, and medical history can all impact how much you pay, so it's unlikely that the "average rates" posted online will be the same as what the insurance company will actually charge you.
Keep in mind that the policy you choose and the riders you add will affect the life insurance cost. Be sure to compare quotes with and without the riders so you can make a fully informed decision. Your agent should provide you with life insurance quotes from as many insurance companies as possible. That way, you don't have to contact them for a quote one by one.
Be sure to also review the financial strength of the insurance companies. No matter how great your life insurance policy is, you won’t be able to cash out if they go out of business. Only get policies from life insurance companies with a strong reputation and positive forecast.
6. Name A Beneficiary
A beneficiary is any individual or entity who will receive the proceeds from your policy after you pass away. People typically choose their spouse and/or children as their beneficiaries.
In general, it's best to avoid naming a minor as your beneficiary as they may not be familiar with the process of filing a claim. You should also avoid naming your estate as the beneficiary since your family members may have to pay tax before they can receive the proceeds.
The beneficiary doesn't have to be limited to one person, either. You can choose two or more people, then decide how the proceeds will be divided between them. A charity or a trust can also be listed as a beneficiary.
For business owners who are purchasing insurance products for their company, you can name your business partner as your beneficiary. You'll also need to write out a formal plan that lays out how you want the proceeds to be used.
7. Qualify For Life Insurance
Now that you're done making all of the important decisions, it's time to start applying for life insurance. You'll typically need to provide life insurance companies with the following details:
Personal information/identification: You'll need to provide proof of your identity by submitting a copy of your birth certificate or a valid passport/ID. Residents can also use their permanent resident card.
Proof of income: Life insurance companies require proof of income so that they can gauge your ability to pay your premiums. You can send the insurance company your letter of employment, tax return, or bank statements.
Proof of residency: Life insurance companies require a property tax statement or a mortgage bill from homeowners. Renters can also submit their signed lease agreement or rent receipts.
Once you've sent all the required documents and information to the life insurance company, you'll undergo what's called the underwriting process. This is the phase where life insurance companies review your background and check your insurability.
At this stage, you'll typically be asked to undergo a medical exam. The technician or nurse will measure your height, weight, blood pressure, and pulse. You may also be required to submit a urine and blood sample. Generally, insurance companies are in charge of paying for this physical exam.
Aside from taking a medical exam, you should also expect to answer questions about your health, lifestyle, and financial status. Those who like to engage in risky hobbies, like bungee jumping or skydiving, tend to have higher premiums because they're at greater risk of getting into an accident. Individuals with a good credit score generally get incentives because they're more likely to keep up with all insurance payments.
Once you're finished with the application process, the insurance company will review your information and the results of your health check. Then, they’ll determine how much you'll have to pay for your policy. They might also request additional information from you during this time.
After about 4-6 weeks, you'll receive your policy offer from the insurance company. Keep in mind that the actual offer may be different from the life insurance quote you originally received, especially if the company finds any red flags regarding your health or hobbies.
When reviewing your policy offer, pay special attention to your premium payment terms. The policy document should state if you're supposed to pay the insurance company monthly, quarterly, semi-annually, or annually. It should also state if you have the option to make your payments flexible in the future.
Aside from the payment terms, pay attention to life insurance exclusions, as well. This refers to the cases where beneficiaries will not be able to get the benefit from your policy. For example, death by suicide will often void your policy.
9. Finalize Documents And Pay For Your Insurance Policy
Once you accept the policy offer, all you have to do is sign the documents and pay for the initial premium. Keep in mind that your life insurance policy won't be effective until these are done.
It's important to keep your policy document in a safe place. You should also inform your beneficiaries regarding its location, so they can easily present it to the insurance company once they're ready to make a claim. Without this document, they might find it hard to withdraw money.
10. Keep Your Insurance Up-To-Date
Maintaining your life insurance policy doesn't end with paying premiums. You should also review your insurance regularly to ensure that it keeps up with your changing needs. For instance, individuals who have paid off their debts or whose dependents have already grown up can request to reduce their coverage.
You should also keep the beneficiaries up-to-date. For example, if you bought a policy when you were single and listed your parents as beneficiaries, you can change it to your spouse when you get married.
Buying the insurance you need doesn't have to be a complicated process. As long as you follow the steps outlined above, you'll be able to get the right policy.
If you're ready to get started, get in touch with Wesley Insurance, LLC. We'll help you choose among insurers, compare quotes, pick life policies, and answer all of your questions about life insurance.