How to buy life insurance
There are three basic ways to buy life insurance:
- Directly from an insurance company,
- through an independent local insurance agent, or
- via an independent online broker.
First, it’s important to stress that you should always buy life insurance from an independent broker – whether local or online. Agents who work for a single insurance carrier, such as MetLife or John Hancock, will be eager to sell you a policy. Nothing against those companies, both are large, reputable insurers. However, life insurance pricing is incredibly complicated. If you don’t shop around, it’s almost guaranteed that you’ll pay more than you need to.
If you work with an independent insurance agent you trust, he or she may be your first stop to discuss life insurance, and that’s fine. Just know that your agent may present you with different types of life insurance and the choices may be overwhelming. I found it was easier to ascertain that I wanted level term insurance first before going shopping.
Once you know what kind of life insurance you want to buy, comparing policies gets a bit easier, but there are still a number of variables. That’s where the internet comes in handy, which we’ll get to in a moment.
What kind of life insurance to buy
Term life insurance is the only kind you should consider.
Term life insurance is cheaper and – for 99% of people – term life is the best financial decision when buying life insurance.
The insurance industry earns big profits – and their agents big commissions – from products known as whole life insurance, universal life insurance, or cash-value life insurance. But for most people, anything other than term life insurance is a bad deal.
Term life insurance is easy to understand because it works just like your car or homeowner’s insurance. For every year you pay your term life premium, you’re covered. If you die within the covered period, the policy pays a death benefit. When the policy expires or you stop paying your premium, the coverage ends.
Term life insurance is also relatively cheap. For example, a healthy 20-something might be able to buy a $1 million 20-year term life insurance policy for $500 a year. A smaller policy – say $250,000 – might cost just $15 or $20 a month.
Where to get online life insurance quotes
We recommend Policygenius because they provide more accurate quotes, let you complete more of your application online, and won’t harass you with telemarketing calls.
As insurance industry veterans, Policygenius designed their site to address the most inefficient and inconvenient aspects of buying life insurance.
Policygenius provides a thorough, yet easy, online form that returns term life insurance quotes. The price quotes you got online from most sites, in seconds, are rough estimates at best. According to Policygenius, however, 92% of their estimates are within $10 of a user’s actual yearly payment!
Better yet, Policygenius will only call you if you want to be called. Life insurance salespeople have a reputation for being aggressive with a capital A. As a result, after you request a quote from some other websites, they will call you multiple times a day for weeks.
I know because I tried it! Trust me, Policygenius provides a more pleasant experience; you can read more about Policygenius in our full review.
Information you need to get your quote
You won’t need any specific documents to get a life insurance quote, but you should be familiar with your medical history and the results of your most recent physical exam.
Here are the rough steps involved in comparison shopping for life insurance:
You’ll complete a brief form about you
Gender, age, weight, and whether you smoke are all questions you should be prepared to answer. Smoking is the biggest factor in pricing life insurance. Prepare to pay double if you smoke.
Most sites will require an email address and phone number before spitting back some quotes. But, again, not Policygenius.
If you want to compare life insurance quotes, the broker will ask a lot of personal medical questions, which is unfortunately necessary to provide accurate estimates. Be honest, as much of this information will be verified with your medical record or during a medical exam when you apply for insurance.
Select how much insurance you need (and for how long)
You need life insurance to replace your income in the event of your death, in order to provide for your family. It’s common to buy enough life insurance to replace your after-tax income until your children turn 18, plus an additional amount to cover education expenses or debts.
Common terms are 10, 20, and 30 years. If you’re not sure, use our easy life insurance calculator to find out how much life insurance you should buy.
You may be surprised to see a wide range of prices from different insurers
But without a more detailed application, most of these numbers are just guesses. Insurance companies employ actuaries who do nothing but crunch numbers to determine how to price insurance. The more information you provide upfront, the more accurate your quotes will be.
Learn your class: preferred, super-preferred, standard, or substandard
The insurance industry uses these broad groups to classify customers by risk. For example, if you are perfectly healthy, have a low body mass index (BMI), and do not have other risk factors (like smoking, dangerous activities, or a lousy driving record), you may meet the super-preferred class. By contrast, somebody who is overweight and has high blood pressure may only classify for the standard class and will pay more for the same insurance.
Although life insurance classes can provide broad guidelines of what you can expect to pay, every insurer works differently. For example, let’s say you have a hobby that insurance companies consider high risk – like flying a plane or rock climbing. Some insurance companies may place you in a lower class and charge you more for these “high-risk” activities. Another insurance company may insure you in a higher class, but place exclusions on your policy meaning you won’t receive a benefit if you die as a result of those activities.
Compare quotes from over a dozen insurance carriers
How to apply for a life insurance policy
After you’ve found your best quote, you’ll need to apply for the life insurance policy – this process can take several weeks.
The process of applying for life insurance can involve even more extremely personal questions, paperwork, and a medical exam.
Policygenius helps you get started, but you still have to buy insurance from an insurance company, most of which are still living in the pre-digital era. So, you can’t really buy life insurance entirely online.
Here’s what happens after you apply:
Verify your application
First, you’ll need to speak with an agent on the phone who will verify some of the information you provided online and confirm that the quote you selected is the best policy for you. The agent will then provide some paperwork for you to sign and submit your application to the insurer.
Schedule your medical exam
If the insurance company requires a medical exam (and most do), a contractor known as a paramedical professional will contact you to schedule the exam. The paramedical professional is trained like a nurse in performing a physical exam.
Policygenius, however, has partnered with Brighthouse SimplySelect℠ to offer term life insurance with no medical exam or lab work required! All you have to do is answer a few questions and talk with a Policygenius agent over the phone.
This significantly speeds up the underwriting process, so you can get life insurance in as little as three of four days, rather than a few weeks or months. And what’s even better is this doesn’t raise the premiums that typically come with no-medical exam policies.
Complete your exam, then wait!
The examiner will take a thorough medical history to confirm the info in your application. He or she will take your blood pressure and draw a blood sample that will be sent to a lab to test for cholesterol and glucose levels, tobacco and drug use, and diseases. These results will be shared with you by mail.
In life insurance applications, honesty is paramount: don’t be surprised if you must answer the same question about your medical history or tobacco use five times, but always answer honestly. Insurance companies share information, so misrepresenting information might not just get you denied from one carrier, but banned from many. Worse, it could give the insurer legal grounds to deny your family’s claim if you die.
The insurance underwriter’s job is to take all the information from your application and medical exam and decide whether to insure you and how much to charge. This takes many weeks. You’ll want to ask your agent whether the carrier binds any life insurance upon receipt of the application. For example, when you submit your application and a check for your first premium, many carriers will insure you for something, although not the full amount you’re requesting, pending completion of the underwriting process.
What to expect after you apply
When your policy is approved, it is placed in force and you will be notified, and receive a full copy of the policy.
If you didn’t already provide your agent with a deposit, you’ll be asked to make the first premium payment.
Some insurers may allow you to make your first payment to bind your policy upon submission of your application (prior to your medical exam). The insurer reserves the right to cancel the policy or increase your premium if your exam reveals previously undisclosed medical conditions, however.
Either way, be sure to ask when your policy will be effective – especially if you’re replacing an existing policy. Don’t cancel the old life insurance before you’re sure the new policy is in effect!
The agent will send you a hard copy of the policy. You should make a copy of this policy, place the original and the copy in different spots for safekeeping, and tell your spouse where they are. Finally, you can relax knowing that one of the most important pieces a solid financial plan is in place for you and your family.
That’s it! Although it seems like a lot, the process of buying life insurance can be easier than you think. Scheduling the medical exam and waiting on the results are the only real hassle.
Take action: Visit Policygenius to get a free, no-obligation life insurance quote.
Summary
Buying life insurance doesn’t have to be difficult anymore. Know that you’ll likely want term life insurance, not whole life insurance. And when looking for life insurance, aggregators like Policygenius can help you get quotes for term life in just minutes.
