How to Buy Life Insurance

Corey —  October 28, 2009 — 3 Comments

If you’ve realized you need to buy life insurance and you’ve figured out what type of insurance you need and how much, your next step is to actually buy the insurance you need. With a few simple steps, you can make sure you buy the right policy for you without spending too much.

Gather Your Information

The first thing you should do before buying any kind of insurance is to make sure you really need it. Buying insurance you don’t actually need is a waste of money and should be avoided at all costs. When considering your need for life insurance, you need to ask yourself what will happen if you or your spouse dies. Would the survivor (you, your spouse, or your children) be able to manage without any insurance proceeds? If so, you don’t need insurance on that person.

If not, you need to ask yourself how much coverage you actually need. We’ve already looked at the issue of how much life insurance you need in a previous article. Make sure you’ve carefully determined this amount as it will be one of the main factors determining the cost of your insurance.

If you really do need life insurance and you’ve figured out how much coverage you’ll need, then you’ll need to decide if you need permanent life insurance or term life insurance. Most people will only need term life insurance. There are only a few reasons you might need permanent life insurance.

If a term policy is right for your situation, you need to choose a term length (10 years, 20 years, 30 years, etc.). How long you’ll need the coverage depends on the reason you’re buying the insurance. If it’s for income replacement, you’ll need the coverage until you would retire. If it’s to cover certain debts, you’ll only need coverage until those debts are paid off. The term length you choose will have a significant impact on the price of your insurance policy. But don’t try to save by choosing a shorter term than you really need.

While you’re shopping for insurance coverage, you’ll need some basic information about your health and financial situation. Have that information handy, and be prepared to undergo a medical examination before the insurance company will actually issue your policy.

Keep It Simple

When you go to purchase a life insurance policy, you’ll be bombarded with a variety of options (usually called “riders”) that you can add on to the basic policy. Your best bet is to stay away from these options. Generally, they are a bad deal for you but a great profit center for the insurance company.

For example, with a term policy you’re likely to be offered a “Return of Premium Rider”, which promises to return all the premiums you’ve paid into the policy if you keep it until the policy terminates (at the end of the term you’ve selected). However, you’re going to pay a higher premium for this “privilege”. If you were to instead invest that amount (the cost of this option), you’d end up better off in the long run even with a conservative investment portfolio.

The same goes for a “Waiver of Premium Rider”, which promises to cover the cost of your insurance if you should become disabled. You should not mix life insurance coverage with disability insurance coverage. Also, avoid the “Accidental Death Rider”, which usually doubles the amount of your life insurance proceeds if you die because of an accident. When you calculate your life insurance needs it doesn’t really matter how you die, you’re insuring the financial needs of your survivors because you died. How you died is not going to make a difference in calculating that need.

If you’re going for term insurance, you’re better off going with a basic, level premium term policy with no frills for a term length and coverage amount that will meet your needs. You’ll cover your other needs (like disability) with other insurance coverage specifically designed for that need.

Shopping for a Policy

You’ve figured out how much coverage you need, how long you’ll need it, and what kind of insurance policy you need (term or permanent). Armed with that information, you’re ready to start shopping around for insurance. You have a couple options here:

In Person or Over the Phone – You can shop for life insurance in person by going to or calling a life insurance agent or broker. The key issue here is the difference between an agent and a broker. An agent represents the life insurance company, and he is only bound by law to serve the best interests of the insurance company (not you). An agent may be a “captive” agent, which means they only work for one insurance company, or they may be an “independent” agent, which means they work for more than one insurance company. Either way, they are working directly for the insurance company as the company’s representative and they have no legal duty to serve your best interest. Agents can only get quotes from the insurance companies they work for, which means you might not get the most competitive rates.

On the other hand, a broker represents you and is bound by law to keep your best interests in mind at all times. Insurance brokers are working directly for you and do not work for the insurance company. They may provide you with quotes from any number of insurance companies, which helps you find the best rates available. They are also required to clearly disclose their compensation for selling you a policy. It should be clear that I would strongly recommend working with a broker whenever possible. Ask your family, friends, or a trusted advisor (accountant, lawyer, or financial planner) for a recommendation of a good insurance broker. If you can’t get a recommendation, search for insurance brokers in your phone book or online and meet with several to find someone you trust. Generally, these brokers will be able to help you with other insurance policies as well (auto, homeowner’s, disability, etc.) so you’ll want to get someone you can enjoy working with and believe to be trustworthy.

Online – The Internet has made it very easy to get insurance quotes with little hassle or time. There are a wide variety of online insurance quote services available, which is obvious with a simple search. Insure.com is one of the best sites to get life insurance quotes as they ask you pertinent questions and outline the requirements you’ll need to meet to qualify for the policy quotes they provide. If you have a complicated situation or want to talk to someone in person, you can try Accuquote.com or call them at 1-800-442-9899.

Get Multiple Quotes

You may be tempted to get the first Cheap Term Life Insurance plan out there, but make sure to do your homework. Regardless of the method you choose, be sure to get multiple quotes. Also, keep in mind that if you’re married the best deal might involve using separate insurance companies for you and your spouse. These warnings are especially important if you choose to use a life insurance agent because they will be limited in how many companies they can get quotes from. This is an important decision, so make sure you give it the time and consideration it deserves.

Questions?

If you have any questions, feel free to leave them in the comments. I always do my best to answer readers as soon as possible. Thanks!

Corey

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Corey is currently pursuing a Master of Arts degree in religion. While he enjoys learning and writing about Christianity, another one of his new passions is writing about personal finances in order to help others make wise decisions with their money.

3 responses to How to Buy Life Insurance

  1. what type of insurance (whole life, universal, paid-up,term, etc) YOU sell the most?

  2. Hi, citishark! I actually don’t sell any kind of insurance. I’m a fee-only financial planner, so I don’t accept commissions from the products I advise my clients to purchase. However, I’ll almost always recommend term insurance unless there’s a true need for permanent life insurance (like a special needs child or estate taxes).

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