How to Buy Life Insurance
If 2020 taught us anything, it’s that getting your finances in order is a good idea. Beyond budgeting and saving, you want to think of the long-term and how you can protect your finances as well as your family. That’s where life insurance coverage comes in, which can offer some financial security. In this guide, we’ll break down what you need to know about types of life insurance and show you the steps you can take to buy your own policy.
What is life insurance coverage?
Life insurance is coverage that provides financial payouts (typically called a death benefit) to beneficiaries (such as a spouse and children) after a policyholder has passed.
So if you’re the breadwinner and you pass away, your family would receive financial support to help cover the lost income, funeral costs, any debts, and more — meaning your death wouldn't leave them scrambling for funds. The amount that is paid out depends on the policy but life insurance policies can range from $100,000 to up to $5 million dollars.
Life insurance is a great way to ensure that your family will be financially supported, no matter what happens. That type of financial security can provide peace of mind for everyone during a tough time grieving the death of a loved one.
Types of life insurance
Buying a life insurance policy is a great next step in protecting your finances and boosting your financial security, but not all policies are the same. In fact, there are various types of life insurance to consider before purchasing a plan. You also want to consider the payout amount and term and assess your life insurance needs. Here are the most common types of life insurance:
Term life insurance
Term life insurance, as its name implies, covers you for a specific term. So for example, you might buy a 20-year policy for $500,000. The most affordable of life insurance options, you pay a premium, aka a monthly payment until the policy ends.
Your premium will vary based on your age, lifestyle and health and any other medical conditions you may have. If you pass away during the term, the policy amount will be paid out to your beneficiaries. Typically, you can choose term life insurance policies for 10, 20, or 30 years. This type of insurance is often used by parents who buy a term for the life of their children in the event something happens before the children become adults.
However, there is no cash value if you survive to the end of the term and you will not receive a payout. In order to extend the insurance, you will need to begin the application process all over again, including taking a medical exam. This often means higher premiums because you are now 20 to 30 years older.
Permanent life insurance
Permanent life insurance, also like its name, is permanent and covers you from when you take out the policy until you pass. This option is a bit different as there is a ‘cash value’ component, meaning you have the ability to borrow against your policy should your financial situation require it, and as such a permanent policy is considered an investment. Permanent life insurance is also called universal life insurance and whole life insurance.
Is term or whole life insurance right for you?
Buying a life insurance policy is an important step to protect your family. It ensures that no matter what happens, they are covered financially. Given the various types of life insurance, you need to assess which is the best life insurance policy for you.
Buying a term life insurance policy has more affordable premiums and will cover you for a specific amount of time. If the policy expires in your lifetime, you won’t receive a payout. You could then apply for another plan, but be aware your premiums may be higher because of your age at that time.
A whole life insurance policy is a good option for people who want guaranteed financial support. Whole life insurance has fixed premiums so you always know what you’re going to pay, which can help you budget.
This type of policy is good for people who have complex estate planning needs as well as for people who have disabled family members to financially support. It’s also a good option for business owners or if you want to guarantee an inheritance for your children.
Whole life insurance premiums are more expensive but also offer some ‘cash value’, so may be considered an investment. You can also access part of your funds if you’re in a bind.
When deciding which life insurance policy is right for you, look at your current finances, future goals, as well as your dependents and current financial obligations. For many people, term life insurance is a simple and affordable option to get started today. If your finances are more complicated with specific estate planning needs, whole life insurance may be the better option.
Best life insurance companies
If you’re in the market for a life insurance policy, the good news is there is no shortage of companies to choose from. In the past few years, many life insurance companies have made it easier to secure a policy online. Here are some life insurance companies to consider:
Policygenius offers term life insurance at competitive rates. In fact, currently the company offers $100 if you find a more affordable policy. What makes Policygenius standout is you don’t have to give them your contact information to compare life insurance quotes.
You’ll provide your zip code, gender, as well as date of birth. Plus, you’ll be asked questions about your health history. Once you input all of your information, Policygenius acts as an aggregator and compares the best rates and policies for your situation.
Haven Life is another option for term life insurance that you can get online. You can get up to $3 million in coverage. The company offers affordable policies starting at $14.99 per month for a $250,000 policy with a 20-year term. Their coverage is offered through MassMutual, so you get the protections from one of the oldest banks.
Bestow offers term life insurance policies online with plans starting at $16 per month. You can get a policy from $50,000 to $1 million for either a 10- or 20-year term with a process that is convenient and user-friendly.
If you’re looking for whole life insurance, one place to look is Northwestern Mutual. Getting a whole life insurance policy through them allows you to use the cash value at any time and earn dividends as well. The policy will cover you for life and the cash value will continue to grow.
Allstate also offers whole life insurance policies. Your payments are fixed and you may also be able to use your cash value. As long as premium payments are made, the death benefit will be given to your beneficiaries. You can speak to an insurance agent to find the right plan for you and discuss it further.
Lifeinsurance.net doesn't provide insurance but instead offers free quotes instantly from many of the nation’s leading life insurance providers, all in one place. You can complete an application online and it will pair you with multiple insurance agencies with quotes.
How much does life insurance cost?
When buying life insurance, you pay a premium that will vary depending on if you get term or whole life insurance. Your premium rate will also be based on age, sex, and medical history or any medical conditions.
Term life insurance premiums will be easier on your wallet than whole life insurance. According to data from Business Insider, the average cost of life insurance is $44 per month. That includes all types of life insurance.
For a healthy male in his 30s, it would cost $16.14 per month for a $250,000 term life policy for 20 years. Whole life insurance for a healthy man in his 30s would cost $122.20 per month for a $100,000 policy. As you can see there is a great difference between types of insurance and cost. For both types of insurance the premiums are more expensive the older you are.
Term life insurance can make a lot of sense as the premiums won’t break your budget and will provide protection.
In order to receive life insurance, underwriting for your policy will most likely include a medical exam with some exclusions for those who are in their early 20s. Your exam is important to show you are healthy going into a policy, for example, your blood pressure and cholesterol aren't high and indicating future heart trouble. Those with pre-existing conditions, such as diabetes, an autoimmune disease, and cancer, will pay higher premiums as it is more likely the insurance policy will be paid out. (Insurance companies are hoping they don't have to pay out your insurance and that you will live long and they can keep your premiums.)
Pros and cons of life insurance
Before you buy a life insurance policy you want to review the pros and cons. Here we break down the pros and cons of term life insurance and whole life insurance.
Term life insurance
- Affordable premiums
- Flexible terms
- Wide range of policy amounts
- Premiums go up over time
- Coverage expires
- You could outlive the term and receive no benefit or cash value
Whole life insurance
- Fixed premium
- Guaranteed payout
- May be able to use the cash value
- Higher premiums
- May have a smaller death benefit
- More complex
You want to review these pros and cons carefully for each plan and consider your family size, and financial obligations when assessing your life insurance needs.
How to buy life insurance
When you’re ready to buy life insurance, here are steps you can take to get the right policy for you to fulfill your life insurance needs.
Do your research
You want to do your research and look at term and whole life insurance and also look at rates at various companies. You can review the above companies and also use Policygenius, which aggregates life insurance quotes so you can easily compare.
Choose a policy and company
After comparing life insurance quotes, plans, and companies, you want to decide — either term life or whole life. Once you’ve decided on a life insurance type, you want to choose the company you’ll choose the policy from. You can look at online reviews as well as policy amounts. You also want to read the fine print to avoid unwanted surprises later on.
Decide which term would be best for your family and the amount of coverage you need. For example, you could have a 20-year term life insurance policy for a million dollars. If you have a mortgage, children, and are the breadwinner this may be a good option to cover your bases financially should you pass away.
On the other hand, you may not need a policy that large either and can go with a smaller amount of coverage. That’s why it’s important to look at your financial obligations and decide the right amount of coverage for your specific circumstances and family.
Before applying for life insurance, have your personal information ready to go and also be ready to share the details of your health history. So you want to have your height and weight ready as well as information about your medical conditions.
Apply for a plan
Next is actually getting covered! Once you have the life insurance type and provider as well as your information, it’s time to begin your life insurance application. During this time you will work with a life insurance agent who can go over your personal finances and medical records and help ensure you find the right coverage for your financial needs.
It may take several weeks for you to get covered so getting started now is a good idea. Before accepting a plan review the premiums, payout, and any terms and conditions. Once you’re approved, you’ll start paying premiums and be covered.
The bottom line
Life insurance is a great next step if you want to give yourself more financial security. After a horrible event like death, not having to worry about finances can be a huge gift to your family. The good news is you can get affordable policies with term life insurance and there are many providers to choose from. Whole life insurance, while more expensive, can guarantee protection. Regardless of what you choose, getting started now can ensure you get the best rates and are protected.