How to buy life insurance

Life insurance is meant to complete your financial plan, but buying life insurance can be a confusing experience. Luckily, we’ve outlined the eight steps you need to take to purchase life insurance

Life insurance is meant to complete your financial plan. While you help to pay for all the things your family needs in life, life insurance allows you to continue paying for those same things after death. The life insurance death benefit protects your beneficiaries from shouldering an immense financial burden, and can pay for college, dependent care, and other debts that you may have incurred while alive that your family could be responsible for.

But buying life insurance can be a confusing experience. Luckily, we’ve outlined the eight steps you need to take to purchase life insurance.

1. Learn the life insurance vocabulary.

Wading through the morass of life insurance know-how means picking up a bunch of new vocabulary words. Knowing what those words mean is half the battle, because you’ll be better equipped to choose the best life insurance policy for your needs. Here are some of the most important terms:

  • Death benefit — The amount of cash paid out to your beneficiaries when you die, if you’ve been keeping up with your premiums. It’s one of the most important considerations you make when taking out a policy, as you want it to be high enough to cover your family’s expenses when you’re gone.
  • Premium — The amount you pay monthly or annually to keep your policy in effect. Some life insurance types accrue a cash value that can be used to pay your premiums, but those cash value life insurance policies usually have higher premiums in the first place.
  • Term — The period your life insurance policy lasts, as long as you’ve been paying the premiums, if you buy a term life insurance policy. Other types of life insurance, such as permanent and other cash value life insurance, last your whole life instead of just a term.
  • Beneficiary — The person or persons, or some entity like a business, charity, or trust, that you list on your life insurance policy to receive the death benefit after you die. You should list a primary beneficiary as well as contingent beneficiaries in case the primary beneficiary is unable to receive the death benefit.
  • Policy — The policy is the document that you receive from your life insurance company explaining the details of your coverage, including how much the death benefit will be and what you’ll pay in premiums. It will also list the conditions that must be met for the death benefit to be paid out, and failure to meet those conditions could cause a delay in a payout or cancel it entirely.
  • Coverage — Coverage is the amount of the death benefit that gets paid out. Coverage can also include other value components, like the cash value of some life insurance policies that can be redeemed or borrowed against before death.

In addition to learning the vocabulary, have a look at Policygenius’ guide to the different types of life insurance to help you choose the policy you need.

2. Determine how much life insurance you need.

Before you shop around for a life insurance policy, take stock of the expenses you have and expect to have in the future. Remember, the purpose of life insurance is to make sure your family isn’t left paying for those expenses on their own.

  • If you’re married, you want to leave a financial cushion for your spouse. But you also want to make sure that he or she can continue to pay off the loans you co-signed. If you have a mortgage with your spouse, your spouse could lose the house if he or she is unable to keep up with the payments. So make sure you factor in any debts that your spouse may have to cover when determining how much you need.
  • If you have kids, take stock of what child care costs right now. The amount you currently put toward child care should be factored in when determining how much life insurance coverage you need. However, you’ll also want to account for expenses in the future, 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 go to a good school.

Add up all these costs to get a sense of what you’ll need to replace after you’re dead. 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 shortfall. A typical breakdown looks like this:

After-tax income$32,500
Five years of support at $32,500/year$162,500
Raising two kids, ages 3 and 5*$1,176,147
End-of-life expenses$10,000
Total expenses$1,348,647
Credit card debt$5,000
Auto loan$3,000
Total debt$518,000
Total financial obligations (Expenses + Debt)$1,856,647
Total financial obligations minus assets$1,836,647

*Assuming each goes to a private, out-of-state, four-year university, plus childcare expenses

For more tips and information, see our full guide on how much life insurance you need.

3. Get a free quote and pick a life insurance policy.

Getting a quote is easy. You can do it right here using Policygenius’ coverage calculator with just a few pieces of personal information, like your location, age, gender, and basic medical history.

Getting a quote shouldn’t take you much more than 10 minutes. Using 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 premiums and the amount of coverage you’ll receive, and you can compare and choose the one you need. You can also adjust some of the numbers in our calculator until you hit upon a premium-to-coverage ratio that fits more in line with your budget.

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.

With Policygenius, you can compare your various life insurance options side by side for free. If you’re unsure of which insurance carrier you should go with, be sure to check out our insurer reviews, which can help you satisfy concerns you may have, such as whether an insurer has good customer service or lets you make modifications to your coverage online.

4. 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.

5. The application and phone interview.

Getting a quote is an application in that you had to hand over basic information. But the actual application is a little more in-depth. That could mean providing your Social Security number, which the insurers need to check whether you’ve applied to other policies with other insurers and to confirm what you reported in your medical history against prescription drug databases like the Medical Information Bureau (MIB). The application may also ask for a driver’s license number to see if you’ve been involved in any accidents.

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, the insurer may recalculate the amount they owe to your beneficiaries to account for the missing information.

Some life insurance carriers will still want to hear from you by scheduling a phone interview. The purpose of the phone interview is to confirm the contents of your application (the “application quality check”) and may include additional questions about your hobbies and lifestyle. 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.

Be prepared for questions about your financial health, including your income and net worth, as well as about other life insurance policies you have.

At this point, your premium is still an estimation. Everything that comes next will gauge the accuracy of the information you provided to make sure you pay the right amount in premiums after your policy goes into effect.

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With just a few pieces of personal information, you can start the life insurance process.

6. Get a medical examination.

The life insurance medical exam is meant to get an in-person look at your health. It’ll be just like going to the doctor’s office for checkup, except that you can have the medical examiner come to your home or office. The technician or nurse will take basic measurements like your height and weight, blood pressure, and pulse, as well as draw a blood sample. Sometimes you’ll also be asked to provide a urine sample.

The insurance medical exam is free for you and should take about 30 minutes. You’ll have to schedule the appointment time with your life insurance company, usually during your phone interview, and someone from the medical testing company will get in touch if they need to reschedule or cancel.

Although the procedure might seem a little burdensome, you can use the same results on other life insurance applications up to about six months later if you don’t ultimately go with your first choice of carrier. 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.

If you’re young and healthy, you may qualify for simplified term life insurance, which doesn’t require a medical exam. If you’re fine with the small coverage amount (usually a maximum of $250,000), then this form of no-medical-exam life insurance could save you a lot of money on premiums.

7. Wait for underwriting approval.

The hard part is over. Now all you have to do is wait. But what’s happening behind the scenes is that someone called an underwriter, who works for the insurance carrier, calculates how risky you’re going to be to insure. The underwriter’s job is basically to confirm whether you actually get the rate you were originally quoted, and this process can take up to six to eight weeks.

During underwriting, the underwriter will look at the results of your medical exam and the data you submitted with your application. He or she 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.

To determine how much your premiums will cost, insurers use a health rating that will be affected by the results of your medical exam. Some medical conditions that could cause a downgrade in your health ratings, and thus an increase in the premiums you’ll have to pay, include high blood pressure, high cholesterol, and tobacco use. (The most common life insurance classifications, in order from highest health rating to lowest, are Preferred Plus, Preferred, Standard Plus, and Standard. People whose health ratings are even worse than the Standard classification are assessed with a table-rating system.)

8. Sign the documents and pay for your policy.

Once the underwriter completes his or her work, you officially own a life insurance policy. All that’s left is for you to receive the policy and sign it. This is your chance to confirm all of the details of the policy you discussed with the insurance agent or company during the application process, the most important of which are your premiums and coverage. While the death benefit will usually stay the same, your premiums could have gone up or down depending on the assessment of the underwriter.

In addition to signing the policy, you also authorize a method of payment in the appropriate section. During the application process, you decide to pay either a monthly or an annual premium (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.

Once you sign the policy, you’ll need to mail it back to the insurer. Yes, even in the age of artificial intelligence and driverless cars, you still need to use the post. (Some insurers will let you make changes to your policy online, like updating your personal information or beneficiaries.)

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.


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