How to Shop for Life Insurance

If you've decided you need life insurance to protect your family after your death, you're probably now wondering where to start. How do you shop for life insurance and choose the policy that's right for you? Take a look through this guide on how to make life insurance decisions and shop for the coverage you need.

What Kind of Life Insurance Do You Need?

The first step in shopping for life insurance is understanding exactly what type of insurance you need. The two basic types are term life insurance and whole life insurance — and they serve somewhat different needs.

Term Life Insurance

Term life insurance covers you for a predetermined period of time, usually 10 or 20 years. If you die during that time, your beneficiaries receive the full value of the policy. Term policies tend to be much less expensive than whole life policies, but they do not build any cash value over time.

Whole Life Insurance

Whole life insurance, which is sometimes called permanent or cash value life insurance, includes an investment in addition to its life insurance component. The value of your policy grows over time, and you can borrow against your policy while you're alive and still leave an inheritance for your heirs. However, whole life insurance has several disadvantages. It is significantly more expensive than term insurance, and it may not be the best way to invest your money.

How Much Life Insurance Do You Need?

You also need to calculate how much life insurance you think you need before you start shopping. Pull out a calculator and start adding up future expenses. These might include paying off a mortgage or credit cards, funeral expenses and college tuition for your children as well as providing enough for your heirs to handle everyday living expenses if you're the sole provider (or a key provider) for your family.

Many experts suggest that you purchase life insurance in the amount of 10 times your annual salary. However, even that number, high as it may seem, might be an underestimation of what you actually need. Insurance calculations and financial advisors can help you determine the exact amount you need.

Where and How to Shop for Life Insurance

You have a few options when it comes to shopping for and buying life insurance.

• You can get online quotes from most life insurance companies. Start here to gather your research, shop for the best prices and compare your options.
• Directly from the insurance underwriter. This is a good choice (and may be the most economical option) if you already know exactly what you're looking for — which will only happen if you do your research first.
• From an insurance broker or agent. A life insurance broker has the experience and information you need to spell out all your options and help you with your application for coverage. Look for an independent agent who can work with multiple insurance companies to be assured that you're getting the right advice and a good price.

What Are the Steps to Buying Life Insurance?

Walk through these steps when you're ready to purchase your life insurance.

1. Decide whether you need life insurance. If you don't have anyone depending on you financially, you may not need life insurance (though most people should have it).
2. Calculate the amount of life insurance you need. Use the steps noted above, and add in calculations about how much income your heirs are likely to have on their own to come to a final figure.
3. Determine what type of life insurance best suits your needs. Do you want to use your life insurance as a means of savings or investment or your insurance to be valid as long as you live? Then, you should consider whole life insurance. If you only need insurance until a certain date (say, until you retire or until your children are grown), look at term insurance options.
4. Decide whether you want a guaranteed insurability rider or a waiver of premium rider. These two riders act as add-ons to your life insurance policy. The guaranteed insurability rider means you can keep adding to the eventual benefits without having to provide you're in good health. The waiver of premium rider stops your premiums (the monthly payments you make for your insurance) if you become disabled.
5. Research your options. Online quotes are a good place to start to gather the information you need about the policies available to you.
6. Gather your information. You'll need to provide a full health history as well as information about your family's medical history, and you may have to provide medical records to the insurance company. You may also have to provide information on your driving record and on any hazardous hobbies you participate in.
7. Tell the truth on your application. A lie about anything on your life insurance application could be a reason for the insurance company to consider your policy void. Remember that most of the information on your application can be independently verified. Make sure not to leave anything out, even if it's unflattering or embarrassing.
8. Take any required medical exam. Many insurance companies require a health exam in addition to your medical records. Your exam may include urine and blood tests.
9. Gather information about your beneficiaries. You'll need their birthdates and Social Security numbers to name them on the policy.
10. Purchase your policy. Make sure to tell your beneficiaries that they are named on your life insurance policy to make sure they claim their benefits when you pass on. Store all your life insurance documents in a place your beneficiaries have access to.

What Is the Best Strategy When Shopping for Life Insurance?

There are a few key strategies you can follow when shopping for and purchasing life insurance. One is to purchase your insurance at the youngest age possible. The younger you are, the less expensive your policy will be — in part because your youth and health make you less risky to insure.

The monthly premium may be your primary consideration when you're shopping for life insurance, but it's not the only factor to consider. Ask for calculations about the internal costs of the policy, especially if you're buying a whole life policy.

Finally, pay attention to the longevity and quality of the company you're purchasing from. You don't want to spend 20 years paying premiums to an insurance company that may go out of business.