How To Buy A Life Insurance Policy
To purchase a life insurance policy, follow these easy steps:
1- Decide if you really need life insurance.
The main reason most people buy life insurance is to protect their family or others who depend on them. Another reason people buy life insurance is for business purposes — perhaps to get a loan. Other reasons are to pay off their debt when they die (so a loved one isn’t obligated to), or to cover the cost of their burial or other final expenses.
If none of these apply to you, then maybe you don’t need life insurance.
But if you do have a family who counts on your income, or if you’re planning on getting married and starting a family (or a business), then life insurance is absolutely a good idea — especially if you don’t have a ton of money on hand. Even then, a life insurance policy is almost always a wise investment.
Life insurance is also a smart move for non-working spouses. Think about how much it would cost to hire someone to do everything a stay-at-home parent does. Some estimates place a value of $500,000 or more a year on this role!
So why don’t more people buy life insurance? Most — 83%, according to an Insurance Barometer Study by the LIMRA and LIFE Foundation — say it’s too expensive. But it turns out that people hugely overestimate the true cost of life insurance, some by nearly three times the actual amount.
So, do you really need life insurance? Chances are you probably do.
2- Determine what kind of life insurance you need.
Wouldn’t it be nice if figuring out what type of life insurance to buy was as easy as choosing what to have for dinner? Life insurance is an investment, so it’s always a good idea to talk with a licensed agency who can walk you through your options. We recommend getting in touch with an independent agent who represents multiple insurance companies, rather than one who works in-house for a single company and will be obligated to promote that company’s products.
As a general rule, if you want to protect your family against the loss of your business, or keep them from having to pay estate taxes after you die, then you should consider a whole life or universal life insurance policy.
If your primary goal is to protect your family against the loss of your income, then you might want to look at term insurance. This type of insurance will provide your family members with a financial safety net if you die “early.”
You should also think about your long-term strategy. Do you want to “own” your policy and use it as an asset? Or do you want to “rent” your policy and invest the difference in your premium amount in other ways? In the first instance, a permanent policy makes the most sense. In the second instance, a term life policy may be the way to go.
And there’s also the medical exam to think about. If you don’t want to deal with the hassle of taking an exam and having your blood drawn, then you can apply for a no medical exam insurance policy, or even a guaranteed-issue policy. Those types of policies cost slightly more, but they’re also a quicker way to get coverage. There may also be limitations on the amount of coverage you can get. Still, depending on your situation, it might be worth it.
Be aware that buying life insurance is a little more complicated than buying auto or home insurance. After you decide what type of insurance is best for your needs, you also have to choose what level of coverage you want.
You might want to buy enough life insurance so that your family can continue to enjoy the same lifestyle they now have. Or maybe you only need enough life insurance to pay off your debt, pay for your children’s college education, or pay for your funeral expenses. Perhaps you want to leave some money to supplement your spouse’s retirement savings, or to benefit your favorite charity.
As you can see, there’s a lot to consider. A good agent can assist you with these decisions and help make sure you’re satisfied with the policy you purchase.
3- Figure out how much life insurance you need.
If you’ve made it through the first two steps, it’s time to estimate how much life insurance you’ll need. This part of the process usually takes the most work, but that doesn’t mean it has to be complicated.
In fact, you can check out this simple Life Insurance Needs Calculator to get a good idea. Just follow the chart to locate your age, and then multiply the “Recommended” or “Maximum Available” number by your current annual income. Voila! That’s the amount of coverage you should be thinking about.
For example, let’s say you’re a 40-year-old man earning $50,000 a year, and you want the “Recommended” amount of coverage. The calculator tells you that you need $750,000 in coverage. It’s that simple.
Although this is only a basic calculation, it gives you a pretty good estimate of how much coverage you should plan on buying. If you want to dig a little deeper before speaking with a life insurance agent, let’s look at a few other factors.
First Things First
When you’re buying a life insurance policy, it’s important to keep this in mind: It isn’t really about how much you need. It’s about how much your family will need if you die. Consider:
- How much will it take to meet immediate obligations?
- How much future income will it take to sustain the household?
Other than possibly a mortgage, do you have any debt? If you do, then you’re probably spending more than you’re earning. If that’s the case, then you will need additional life insurance to pay off that debt. Otherwise, the amount of your debt will most likely be deducted from the money (or other assets) that would normally go to your beneficiaries.
How much do you spend every month? If you live by a budget, you probably already know the answer. At any rate, before you buy a life insurance policy, you need to know how much you regularly spend. That $750,000 in coverage the rate calculator recommended in our example might seem like a lot, but in reality it might not be enough.
Let’s say you die and your family gets the $750,000. If they invest it using an income diversity strategy, and they earn 5% annually, that would be roughly $37,500 in investment income each year. Can your family live the way they do now on $37,500 a year? If not, you’ll need more coverage.
Savings and Other Investments
If you’ve made a habit of saving money each month, good for you! Along with your savings, you might also have money in other bank accounts, money market accounts, mutual funds, CDs, bonds, stocks, and other assets. Depending on how much you’ve set aside, you might need less life insurance.
But you also have to consider your retirement expenses, college tuition expenses for your children, and other costs you’ll need to cover in the future. If you’ve already arranged to pay for those types of expenses, then you won’t need more coverage. Otherwise — you guessed it — you’ll need more life insurance.
Your Spouse’s Income
Let’s assume that your spouse will continue working after you die. What is your spouse’s annual income? How much longer does your spouse expect to work? You’ll also need to take into consideration the marginal tax rate. (That’s the rate of tax you’re paying on your highest dollars of income.)
Last but not least, don’t forget to estimate the rate of inflation, because it’s a fact of life: The cost of living just keeps going up, year after year.
4- Find the life insurance policy that’s right for you.
By the time you get to this step, you should have an estimate of how much life insurance you need. Now, it’s time to explore your policy options and see how much you can expect to pay.
There are two ways to go about this.
You can go online to shop around and see what’s available. You can even get free quotes and, in some cases, apply online.
Or, you talk to a licensed life insurance agent who can walk you through the process of finding a policy that best suits your needs. Just so you know, it doesn’t (or at least it shouldn’t) cost you anything to talk with an agent.
As an independent insurance agency, True Blue Life Insurance does business with all of the top insurance companies. That gives us the flexibility to shop around for you and get the best policy for your needs, at the best possible price.
When you work with one of our agents, we can address any concerns you might have. We deal with the insurance companies on your behalf and know how to keep the process moving along quickly. If you need a policy ASAP, or if you have health conditions or other issues that might complicate matters, we know from experience which insurance companies offer the best options.
If you have questions, we have answers. Call us at 1-866-816-2100.
Choose a life insurance company
Choosing a life insurance company isn’t a simple task. With so many different insurers to choose from, it can be confusing — and overwhelming.
Sometimes the best-known or largest insurance company isn’t going to be the one that will offer you the best price. And bear in mind that if you have special requirements or issues that might make you less attractive as an applicant, then it really does benefit you to submit your application to insurance companies that are willing to work with you. If you apply for a policy and get denied, that can make it more difficult and more costly to get coverage elsewhere.
At the risk of sounding like a broken record, we recommend talking with an independent licensed agent who’s familiar with a variety of insurers. That way, you can be confident you’ll end up with the right policy at the best price.
After all of that, we realize that you might still want some guidance before you take the step of reaching out to an agent. That’s why we’ve put together the list below. In our experience, these are our top go-to insurers for most people.
- Mutual of Omaha
- Haven Life
- John Hancock
If it sets your mind at ease, know that there’s a window of time after you buy a life insurance policy in which you can change your mind. And like we said, it doesn’t cost anything to talk to an agent, so there’s really nothing to lose.
5- Buy your life insurance policy.
The process of buying life insurance might seem daunting. But it becomes much simpler once you understand the basics and your own personal goals. Here are some key points to keep in mind:
- If an agent is pushing a policy on you, walk away. Honest agents make recommendations and then allow you to make the choice. Unethical agents try to push you into a policy they think is best (and maybe it is best — for them).
- Stick with what you can afford. The reason that most insurance policies lapse or are surrendered is because people don’t keep up with the payments. Choose a policy that you’ll be able to afford now and down the road. You can always buy more life insurance later if you need it.
- Use an independent agent. (Here we go again.) An independent agent represents multiple companies and can find the policy that best suits your needs. “Branded” agents, on the other hand, only sell one company’s products, and they often have high quotas to meet.
Buying life insurance doesn’t have to be hard. With advances in technology, you don’t have to talk with an agent for more than 10 minutes to get the ball rolling. Depending on your specific needs, you might not have to talk with an agent at all — in some cases, you can apply and get an approval decision online, and have your policy delivered electronically. And frequently, whether you use an agent or not, policies can be issued instantly.
Here’s our simple advice: Be informed first, before you make any decisions, and discuss your life insurance options with someone you can trust. If you don’t already have a trusted financial adviser, check our reviews. You’ll see how many people we’ve helped and how satisfied they are.