How to buy life insurance

Getting the life insurance coverage you need takes a few steps but it doesn’t have to be complicated if you are prepared. We’ve broken down the steps to make things easier for you.

Nupur Gambhir

Nupur Gambhir

Published September 28, 2020

KEY TAKEAWAYS

  • First things first, determine how much coverage you need and the type of policy you should get to adequately protect your loved ones

  • Preparation is key for the underwriting process — collect all of your medical history and financial documents before your phone interview

  • The insurer will want to take a comprehensive look at your background to determine your policy premiums

  • Your policy does not go in force until you sign your final policy documents and pay your first premium

Life insurance is a risk management tool that protects your loved ones if you die unexpectedly. If you cover any of your dependents’ expenses, then having adequate life insurance coverage makes sure they’re not financially strapped if you’re no longer around to do so. The life insurance death benefit protects your beneficiaries from shouldering an immense financial burden, and can pay for college, dependent care, final expenses, and other debts that your family could be responsible for if you die.

Once you decide you need life insurance it can take a little time before you actually get it. We’re here to help you navigate the process so it’s a seamless experience.

IN THIS ARTICLE

Determine your life insurance needs

No one life insurance policy is the same — your coverage should be customized to your family’s financial needs. Your policy will depend on your income, debts, expenses, and the needs of your dependents.

Calculate how much coverage to get

Before you shop around for a life insurance policy, take stock of your current and future expenses as well as any outstanding debts. You’ll want to get enough life insurance coverage so that your family isn’t left paying for those costs on their own. As a general guideline, it’s recommended that you get about 10-15 times your annual income in life insurance coverage to make sure these costs are covered.

But while getting 10-15 times your income is a good way to make sure your family has adequate financial protection, it’s not always the one steadfast rule you should be following. When you’re buying life insurance, you’ll need to take a look at all your affairs to get a holistic understanding of exactly how much life insurance you need to avoid risking not getting enough life insurance coverage.

If, for example, you have outstanding debts that a loved one cosigned or a spouse that may need to work less or pay for household and childcare if you died, you may need to get more than just the 10-15 times your income recommendation. Other financial obligations to consider include:

Outstanding debts

Do you have student loans? Or a 20- to 30-year mortgage? These are important considerations when you’re evaluating how much coverage you need. Aside from covering your family’s costs, you want to make sure that you’re providing enough protection that they won’t also be liable for your debts.

You want to not only get enough coverage, but you also want a policy that lasts as long as your debts do to ensure that the coverage is intact if you die.

If you’re married

When you’re shopping for life insurance with your spouse, you have to consider not only the financial support you offer them right now but the adjustments your spouse would need to make if you died. Would they need to work less to provide childcare? Or alternatively, would they need to pay for additional childcare without you around? These are important considerations to take into account that can once again mean that you need more than just 10-15 times your income in life insurance coverage.

If you have kids

Raising a child can be…expensive. You not only need to consider the amount you currently put toward child care — but you also want to account for future expenses, like your children’s college tuition. You’ll want to make sure you leave enough behind for your spouse to pay for your kids to afford their education, housing, and meals or to fund a 529 plan for their education.

Tally up your financial obligations

Add up all these costs to get a sense of what will need to be replaced after you’re gone. Your death benefit should encompass that entire dollar amount minus any liquid assets you already have that your family can use to make up some of the financial shortfalls. A typical breakdown looks like this:

OBLIGATIONEXPENSECOST
RESOURCES
Average income$50,413
Median assets$97,300
EXPENSES
Average annual consumer household expenses$63,036
Raising two kids for 18 years$413,586
Cost of university expenses for two children at 4-year public university$175,600
End-of-life expenses$10,000
Total expenses $599,186
DEBT
Average credit card balance$6,194
Average auto loan$19,231
Median mortgage$256,663
Total debt $282,088
Total financial obligations (Expenses + Debt) $918,885
Total financial obligations minus assets (coverage gap) $821,585
RECOMMENDED COVERAGE $1,000,000

These costs above are based on data compiled by Zillow, Experian, the Federal Reserve, and Education Data and can vary depending on each person’s individual circumstance

→ Learn more about how to determine how much life insurance you need

Check out our life insurance coverage calculator to adjust some of the numbers until you hit upon a premium-to-coverage ratio that is in line with your budget.

Figure out what type of policy you need

After evaluating the type of coverage you need and checking out a few different types of policies, you can decide if you should buy a term or permanent life insurance policy.

Term life insurance is the route most people go — it’s cost-effective and offers the most coverage for the lowest dollar amount. But there may be circumstances where you need a permanent life insurance policy, such as if you have a permanent dependent and need lifelong coverage.

Are you unable to take the medical exam due to the pandemic? Then you’ll likely want to opt-in for a no medical exam policy, where your medical history is still thoroughly evaluated, but through your previous physicals and labs as opposed to a medical exam conducted by the insurer. Or maybe you don’t want to risk waiting the 4-6 weeks it can take for your application to be approved? Then you’ll want to consider instant life insurance, which can get you coverage after one quick call.

And while at first glance a no medical exam or instant life insurance policy sounds optimal, each has its own sets of pros and cons. A Policygenius advisor can work with you (for free) to help you decide what the best policy for you would be.

→ Find our full guide on the different types of life insurance here

Collect the documents you need to get started

You can make the application process as seamless as possible by having all the documents you need on hand before you apply. These include:

  • Proof of identity, citizenship, and age, like a driver’s license, birth certificate, or a valid passport. Noncitizen residents can use their green card (permanent resident card) or an employment authorization card.
  • Proof of income. You can use pay stubs, a letter of employment, a tax return, or an earnings statement from your bank if your primary income is from interest or rent. If you’re unemployed, an unemployment letter or monthly statements describing your unemployment benefits will work.
  • Proof of residency. For renters, that could be your signed lease or a rent receipt. For homeowners, your mortgage bill or a property tax statement will suffice. Insurers will also accept a utility bill or a postmarked envelope with your return address on it.

You’ll also want to know your Social Security number, as you’ll likely have to provide it for some preliminary background checks.

Shop around for a life insurance policy

Because each life insurance company treats each circumstance differently, you’ll pay the most affordable premiums by shopping around with multiple insurers as opposed to working with just one. Working with an unbiased, independent broker like Policygenius ensures you find a company that caters to your specific life insurance needs at the most competitive price.

Policygenius works with you to find insurers that are favorable for your budget, coverage needs, and health profile. By shopping around with a broker, you can get a policy that offers the best coverage for you and your family.

Get free life insurance quotes online

Getting a free quote and picking a life insurance policy is easy — by working with an independent insurance agent or broker, like Policygenius, you can get quotes from a number of different insurers right under one roof with just a few pieces of personal information, like your location, age, gender, and basic medical history.

These quotes will feature your prospective premiums and the amount of coverage you’ll receive from various insurers to help you determine the right policy for you. Most people pick the cheapest policy that has the coverage they need, but it’s important to compare other features, like what features and riders a company offers, their customer service and other ratings, and whether or not they’re best for your particular health profile. Compare beyond price to find the best life insurance company for you.

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Complete the application and phone interview

Getting an initial life insurance quote can give you a good idea of the premiums you’ll pay, but the actual application is a little more in-depth. Life insurance companies do a thorough evaluation of your medical history and background, so if they find something you didn’t report, your actual premiums may look a little different than the initial quote you received.

Insurers will check your life insurance application history for any issues— like if you’ve ever been caught lying on an application — and confirm what you reported in your medical history against prescription drug databases like the Medical Information Bureau (MIB). The application may also ask for your driver’s license number to see if you’ve been involved in any accidents.

Questions to expect from your insurer

You’ll be asked to authorize your doctor to share your health information with the life insurance company, known as an attending physician statement (APS). This information is necessary to not only get you the correct policy but could also come into play later when the insurer is paying out your death benefit. If you had any medical conditions that should’ve affected your premiums and you lied about them on your application, the insurer may recalculate the amount they owe to your beneficiaries to account for the missing information.

Additionally, you’ll be asked about your hobbies, lifestyle, financial health — including your income and net worth — as well as about other life insurance policies you have. If you’re the kind of person who attempts to jump the Grand Canyon on a motorcycle, you can probably expect to pay a little more for your life insurance coverage.

Compare and buy life insurance

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Get a medical examination

Or don’t.

If you opt-in for a no medical exam life insurance policy, then the insurer will continue to look into your medical history and reach back out once they’ve come to a decision about your policy. If you decide to go the traditional route, then at the end of your phone interview, you’ll schedule your medical exam. The life insurance medical exam is meant to get an in-person look at your health at no cost to you. It’s similar to your yearly physical, except that you also have the option of the medical examiner coming to your home or office.

The technician or nurse will take basic measurements like your height and weight, blood pressure, and pulse, and you’ll also provide a blood and urine sample. The entire process should take just about 30 minutes. Although the procedure might seem a little burdensome, you can use the same results on other life insurance applications for up to about six months if you need to postpone your life insurance application. You can also ask the testing company or the life insurance company for a copy of the results, effectively scoring yourself a free medical exam.

→ Learn more about how the life insurance medical exam works

Get your policy offer

The hard part is over — now all you have to do is wait. Behind the scenes, the underwriter you’ve been working with calculates how risky you’re going to be to insure, which determines your health classification and what type of premiums you’re going to pay. This process can take four to six weeks, but sometimes longer if they need to verify parts of your application or require any supplemental documentation.

How the underwriting process works

How do they decide what you pay? By looking at the results of your medical exam and the data you submitted with your application. They will cross-reference what the insurer knows about your medical history with what’s in the MIB, looking as far back as seven years ago to see what medications you’ve been prescribed. The underwriter will also learn whether you’ve ever been convicted of a DUI/DWI or reckless driving as well as other traffic offenses.

Some medical conditions that could cause a downgrade in your health ratings, and thus an increase in premiums, include high blood pressure, high cholesterol, and essentially always, tobacco use.

The most common life insurance classifications, in order from the highest health rating to lowest, are:

  • Preferred Plus
  • Preferred
  • Standard Plus
  • Standard

People with complicated health histories or recent medical issues may be given a substandard rating, which is assessed via a table rating system.

→ Read our full guide on life insurance classifications

Sign the documents and pay for your policy

Once the underwriting process is complete, you’ll be issued a policy offer. If you agree to their terms, all that is left is for you to sign the policy documents and pay your first premium. Your policy isn’t in force until you do so — a policy offer from the insurer doesn’t mean you have coverage.

You’ll also want to take note of the nitty-gritty of your policy — you can choose between paying your premiums monthly or annually (with the latter usually offering a small discount), and this should also be indicated on the policy. You can always change the frequency of payment after the policy is in force by contacting your insurance company.

What to do with your policy documents

Depending on the insurer, your policy documents will either be electronically delivered or need to be mailed back. Yes, even in the age of artificial intelligence and driverless cars, you still need to use the postal service. The same will apply for how insurers allow you to make changes to your policy. Some insurers will let you make changes — like updating your personal information or beneficiaries — online, while others will need to be done via snail mail.

Make sure to keep a copy of the policy in a safe place, and let your beneficiaries know exactly where that place is and how to access it. If your beneficiaries don’t know about the policy, they won’t know to claim the death benefit you’ve been paying for all this time, and having easy access to the policy will help them claim the payout as soon as possible.

FAQ

How much life insurance should you buy?

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Your life insurance coverage should be at least 10-15 your income and/or enough to cover your debts.

Can you purchase life insurance online?

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The Policygenius quoting tool allows you to submit all of your details to get a life insurance quote online. Most life insurance policies require a phone call with an agent, at the minimum, to get active coverage.

How do I know what life insurance to buy?

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The type of life insurance you get depends on your individual circumstances. Most people only need a term life insurance policy, but some individuals with long-term dependents are better off with a whole life insurance policy. Speaking to a Policygenius adviser is the best way to get the right coverage for your needs and budget.

Is it worth it to buy life insurance?

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If you have dependents or anyone who would suffer financially if you died, life insurance offers important financial protection. Your life insurance policy would pay out upon your death to cover any income or services you provided.

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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