How to Buy Life Insurance

Experts Guide to Buying Life Insurance

(Choose your benefit amount and your policy — with the help of an independent agent)

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Premature death is something that nobody expects, but it does happen and can leave your loved ones with a financial hole and extra bills to pay. Life insurance can remove those financial burdens and allow your loved ones to properly grieve your loss. 

Buying life insurance isn’t complicated, but it does require you to make some decisions on the type of policy you want and the amount that your beneficiaries will receive. An independent insurance agent can help you make those decisions. 

How Does Life Insurance Work? 

Life insurance pays out a dollar benefit amount to your assigned beneficiaries if you pass away while the policy is active. You can generally choose any amount you want for the death benefit, from $10,000 to $10 million. Your life insurance premiums are mainly based on the type of policy you choose, how much your death benefit is for, and your current age and overall health. 

There are two main categories of life insurance, with many different types in each category:

  • Term life insurance: Term life insurance is the cheapest type of life insurance because it covers you for a set period of time, such as 20 or 30 years. 
  • Permanent life insurance: Permanent life insurance policies will stay in effect for your entire life, as long as you pay the premiums. There is typically a cash value component to these policies as well, which functions similarly to an investment account and is cash that you can use in your lifetime. 

No matter which type of life insurance you choose, you’ll need to designate who your beneficiaries are if you do pass away. This is who will receive your death benefit amount and it can be more than one person. 

How to Buy Life Insurance

There are many insurance companies that offer online life insurance, or you can get quotes from multiple companies through an independent insurance agent. 

The type of policy that you buy will determine whether or not you need a medical exam. Most life insurance policies require medical exams, particularly if the death benefit is over $100,000. But there are some companies that don’t require a medical exam for those higher benefit amounts, and there are also some types of guaranteed issue policies that don’t require an exam. 

Buying life insurance through an independent insurance agent means you’ll be able to receive quotes from multiple insurance companies. Your agent can also explain the different types of life insurance available to you, along with the pros and cons of each policy and any available life insurance discounts you're eligible for. 

1. Before you buy life insurance

Before you start shopping for life insurance, you’ll want to know how much coverage you need, but it’s also important to keep in mind that some life insurance coverage is better than none at all. 

The two most important financial aspects to consider are lost income and debt. If your dependents are relying on your income, you’ll want to factor in how much money you make in a year and multiply that by however long you’d like your income to be replaced. 

For example, if you make $50,000 a year and are the sole breadwinner, you might want to consider having a death benefit of $500,000, which would replace your income for 10 years. 

Five reasons why you need life insurance


With debt, you’ll want to take a look at how much of your debt can be paid for by any other working member in your family. If you have a mortgage, could your significant other afford to pay for it by themselves? If you’re single but have dependents, then you’ll probably want to factor in your mortgage or rent payments. 

Credit card and student loans could also be transferred to your spouse or dependents, so ideally you would factor in those as well. 

There are also funeral and burial costs to consider, which typically cost between $5,000 and $15,000. Your life insurance could pay for the costs of this, removing that financial burden from your dependents. 

Finally, future education costs can be considered in a life insurance payout amount. The average cost of tuition in public universities continues to rise each year, so you might want to factor in that as well. 

As you can see, the death benefit that you might want to buy is likely going to be higher than what you originally thought. If you can afford life insurance to cover all of it, then you’ll be removing almost all of the financial burden that your premature passing would bring. 

If you can’t afford to buy that large of a life insurance policy, you’ll want to prioritize your costs and pick an amount that you’re comfortable with. 

2. Decide which type of life insurance you need

Within the categories of term and permanent life insurance, there are multiple options you can choose from:

  • Standard term life insurance: This is the cheapest life insurance option. You can typically choose term lengths of between 10 and 30 years. Your premium will be set at the same rate for the entire term. Once your term expires, you typically still have a policy in force, but the premiums will change each year and will reflect your age, making this policy unaffordable once the term expires. 
  • Return of premium term life insurance: Exactly like a standard term policy, but you’ll receive a refund check for the total amount that you paid over the course of the term. You’ll have to pay your premiums for the entire length of the term in order to receive the money back. A return of premium policy is considerably more expensive than a standard term policy. 
  • Mortgage life insurance: This is a type of term policy that will pay off your mortgage if you pass away during the term. It’s more narrow than a standard term because your premiums stay the same even though your mortgage amount decreases, but it can be more lenient if you have health problems and don’t qualify for a standard term. 
  • Whole life insurance: This permanent policy has a fixed premium amount and stays in effect for your entire life. It also builds up a cash value component, which you can pull out and use for whatever you want as it builds up over time. 
  • Universal life insurance: This permanent life insurance policy allows you to pick the stocks that you’d like to invest your cash value in, although typically it’s a limited choice of options that the insurance company will give you. 
  • Variable life insurance: Another permanent option, a variable life insurance policy allows you to adjust and change your premiums and your death benefit. It’s a complex product that requires a lot of monitoring to make it work. 
  • Variable universal life insurance: A combination of a universal and variable policy, this permanent option gives you the most flexibility in premiums, death benefit, and investment options, but also carries the most risk that it might not work out as good as you had hoped. 
  • Final expense life insurance: A type of permanent policy that’s designed to only cover your funeral, burial, and end-of-life medical expenses. The benefit amount is usually between $10,000 and $30,000 and is often guaranteed issue, meaning you can receive a policy no matter what your health condition is. 

3. Compare life insurance companies

There are many life insurance companies to choose from, and all of them will set your life insurance premiums based on:

  • Your age
  • Your gender
  • Your height and weight
  • Your health status and history
  • The benefit amount you select

In order to determine your health status and history, you’ll need to fill out a life insurance application and will likely need to complete a medical exam. Life insurance companies want to know your family’s health history and your own health history to determine the likelihood that you could pass away while your policy is active. 

If you have a permanent policy, the life insurance company is guaranteed to pay out a benefit amount someday, so they want to know your overall health condition in order to set rates. 

An important factor to consider when choosing life insurance companies is it’s financial ratings. Ratings agencies like AM Best routinely hand out grades to life insurance companies based on their financial stability and outlook. This is important for you because a life insurance company’s ability to pay out claims is directly affected by its financial stability. 

A company is legally obligated to pay a life insurance claim, but if you have a claim with a company who is not doing so well financially, you could face long delays before you receive your claims check. 

Also be sure to check out what type of life insurance discounts the companies offer, and what type of customer support it has. You’ll probably want to choose a company that has after-hours support and an easy claims process so that your dependents and beneficiaries are easily able to file a claim. 

4. Find the best option for you and your loved ones

The best life insurance is active life insurance, meaning it’s important to have some type of coverage rather than no life insurance at all. 

The best option for you and your loved ones will depend on the type of policy you want and the quality of service your loved ones would receive if you do pass away. Cheapest isn’t always the best when it comes to insurance. 

But it’s important to find a policy that you can afford so that you’ll keep paying the premiums. A life insurance policy is no good if the premiums aren’t paid, so choose something that you can afford. 

You can always buy a new, larger policy a few years from now, but you’ll have to go through the entire application process again, including taking a new medical exam. 

5. Finalize your new life insurance policy

Once you’ve picked a company and policy type, you’ll need to complete the application. This is where you’ll state your health history and family’s health history, and also where you’ll designate your beneficiaries. You can change your beneficiaries at any time later. 

After you apply for your policy, that’s when you’ll be required to take a medical exam. Typically, the medical exam will be performed by a medical professional and can be performed at your home or work, depending on what’s required in the medical. Most medical exams are composed of a health questionnaire, blood work and a urine sample. 

Once the life insurance company receives your medical results, you’ll be notified if anything came up in the exam that would change your premium. If it does, you’ll have the opportunity to back out and pick a different policy type or reduce your death benefit. 

Finally, you’ll need to submit your first payment to fully activate the policy. Once you receive your official policy document in the mail, then your life insurance policy is 100% in force. 

What to Do if You Have an Old Life Insurance Policy

If you currently have a life insurance policy in force and are replacing it with a new one, technically you’ll need to fill out a separate document as part of your application. This is simply part of the many laws surrounding life insurance that exist to prevent life insurance fraud. 

You could choose to stop paying your premiums on your old policy and it will likely cancel on its own, but it never hurts to fully comply with the law and fill out the life insurance replacement form. 

If you have any type of permanent policy with cash value, then be sure to pull out all of your cash value before you cancel the policy. In fact, pulling out every penny of the cash value will cancel the policy by itself, but you’ll have to actively ask for the cash value from the company; they won’t send it to you automatically. 

What to Watch Out for When Buying Life Insurance Online

Many companies offer life insurance online, with some life insurance companies solely operating online. There is nothing inherently wrong with buying a life insurance policy online, and there are many good options out there. 

There are two things to watch out for when buying life insurance online:

  • Financial stability of the company. Some online life insurance companies are backed by larger, traditional life insurance companies, and are more stable. Other online start-ups might not have that financial backing. A life insurance claim may not be paid out for decades, meaning you want to be with as financially strong a company as possible. 
  • Claims process. Your loved ones will be the ones filing a life insurance claim, so you want to make the process as easy as possible on them. Find a company that has an easy claims process and quick turnaround time, and make sure that your beneficiaries know where your policy is and how to file a claim.

The Benefits of an Independent Insurance Agent

An independent insurance agent can help you with buying life insurance and can be there if your loved ones have to file a claim on your behalf. Even if the individual insurance agent that you sign up with isn’t working when your claim is filed, the insurance agency will have records of your policy and be able to help your beneficiaries navigate the claim. 

An independent insurance agent can also obtain quotes from multiple life insurance companies and help you decide on which policy is best for you and your family. The knowledge and service you’ll receive from an independent insurance agent can help make all the difference in the world in having the proper life insurance. 

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TrustedChoice.com Article | Reviewed by Paul Martin

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