How To Buy Life Insurance

Updated By: Bennett Bier

Expert Life Insurance Agent

March 16, 2022

You already know you need life insurance. But all the choices and advice out there can be a bit overwhelming. You just want to protect your loved ones and do it at a reasonable price.

Don’t worry. We’ve got you covered.

In this article, we’ll explain (in easy language) how to buy life insurance.

After reading you’ll understand:

• How much life insurance coverage to buy
• What will it cost – Factors that go into your premiums
• How and why you MUST shop around (and an easy way to do it)
• Options for life insurance even if you have some health issues

Life insurance policies can generally be purchased in below mentioned simple steps.

Table of Contents

How Much Life Insurance Do I Need To Buy?
How Life Insurance Companies Set Rates
3 Ways To Buy Life Insurance
Can You Still Get Life Insurance With Severe Medical Issues?
What Type of Life Insurance Policy to Buy
How to Apply & Buy a Life Insurance Policy

How Much Life Insurance Do I Need To Buy?

There is one of those general “rule of thumbs” you may have heard that 10 times your current income is a good amount to set for a death benefit. It’s not a terrible way to look at things but the problem is that everyone’s situation is different.

You want to buy enough coverage so your family is taken care of without overspending. For some that might be 17 times your income and for others only 5.

Here’s the deal.

The right amount for you is your long-term financial obligations minus your assets. Your current income actually shouldn’t matter much.

How To Calculate The Right Amount of Life Insurance Coverage To Buy

You’ll do this by:

1. Taking inventory of all your debts and assets to see what would be left over.
2. Figuring out what your family needs to live on right now.
3. Account for how long you need the life insurance to support your loved ones. Are the kids very young or almost out of the house? If your spouse works, how soon until they plan on retiring?
4. Add on future obligations such as college education, paying for weddings, etc.

You can’t possibly predict everything that will happen after you are gone, but this exercise will get you close to the amount of life insurance you should buy. When in doubt, always buy a little more coverage to be safe, if you can afford it.

If you are the kind of person that likes to get more detailed, there are plenty of life insurance calculators out there that will walk you through the steps and suggest an exact amount. Try to find one that is unbiased and not affiliated with a site trying to sell you something.

Here is a good calculator you can use.

How Life Insurance Companies Set Rates

They go by the cold hard data to answer the question, how likely are you to die and when?

Your premium payment will be based on:

• Amount of coverage desired
• Term of coverage (10,20,30 years, whole life, etc)
• Male or Female
• Medical history
• Other risk factors (certain occupations, dangerous hobbies like skydiving, driving record, etc)

After looking at everything, you’ll be assigned to a health class which drives the final price you’ll pay.

Types of Life Insurance Health Classes

There are two primary types of life insurance to choose from: term life, which lasts for a set period of time, or permanent life insurance, which covers you for as long as you live.

What Term Life Insurance is and how it works?

In general, term life insurance is a policy that provides coverage for a specific period of time (the “term”). If you die during the term, the policy pays out a death benefit to your beneficiaries. If you don’t die during the term, the policy expires and you don’t receive anything.

Term life insurance policies are generally much less expensive than whole life insurance, and it’s a good option for people who want coverage only for a specific period of time. For example, you might buy a term life policy to cover you until your children are grown and no longer need to be financially supported.

What is Permanent Life Insurance?

Permanent or whole life insurance is one form of life insurance policy that should be considered if you are looking for something that will last throughout your lifetime and beyond.  Permanent life insurance is a type of policy that builds a cash value over time. This cash value can be accessed in the event that you need it, such as if you need to pay for funeral costs or other final expenses. In addition, the death benefit from a permanent life insurance policy is typically much higher than that of a term life insurance policy.

When considering whether or not permanent life insurance is the right choice for you, be sure to weigh the pros and cons. On the one hand, permanent life insurance policies are more expensive than term life policies. However, they do provide a lifetime of coverage, which can be important if you have a long-term financial plan or want to leave a legacy for your loved ones.

If you are interested in learning more about permanent life insurance policy, be sure to speak with a qualified insurance agent. They can help you decide if this type of policy is right for you and answer any questions you may have.

As general guidelines, here is what you can expect on the different health classes. This is just to get an idea. You’ll need to work with a good independent agent if you want to apply and be placed in the best category. Trust us, one category up makes a big difference in what you pay.

Preferred Plus

This group is for the healthiest people. Less than 5% of those that apply for life insurance will qualify.

In order to get Preferred Best, your height and weight must fall within normal ranges. No smoking in the last 5 years. Lab results for things like high blood pressure and cholesterol must be under control. No immediate family (parents or siblings) that died from cancer or heart disease before age 60. You can’t have any significant health issues. Must have no DUI’s or major driving infractions in the last 5 years.

Preferred

You’ll still need to be very healthy for this class but it’s not quite as strict.

Cannot have used any nicotine products within the past 3 years. Blood pressure and cholesterol levels still healthy, but more flexibility than Preferred Plus. Need to have a clean driving record in the last 5 years except for 1-2 minor moving violations. For family history, may be OK if a sibling passed away from cardiovascular or cancer before age 60 but not your parents.

Standard and Standard Plus

The majority of life insurance applicants will fall into this range. Standard Plus ratings will be 15 to 25% less than regular Standard so it does pay to shop around and get this bump if you qualify.

No smoking for at least 12 months. Blood pressure and cholesterol readings are more forgiving but still can’t show any major risk. Can be approved at Standard with many carriers with a history of cancer as long as 7 years in remission has passed. A DUI or reckless driving will only need to be 2 or more years in your past to be considered at Standard. No cardiovascular or cancer death of more than one parent before the age of 60.

Substandard

There are many other levels below Standard and Preferred. Life insurance companies refer to these as Table Ratings. These ratings allow people with health challenges to receive coverage but the cost will be higher to account for the increased risk.

Most companies have 8-10 table ratings and with each level drop down, expect your premium cost to rise about 25%.

3 Ways To Buy Life Insurance

You must shop around. Period. We’ll explain the best way to do this.

The Hard Method: Researching & Buying Life Insurance Yourself

There are over 800 life insurance companies operating in North America. Get a spreadsheet together, set aside a few weeks time and start making phone calls.

You can do a lot of research online but it will literally take weeks to compare a reasonable number of options.

Once you’ve selected the right one, change your phone number so the salespeople from the other 799 can’t keep bothering you 😉

A Better Way: Life Insurance Comparison Services

Use one of those comparison services you see ads for on TV or the Internet. They’ll compare rates at a few companies for you. The problem is, these are call center agents who want to sell you a policy and quickly move on to the next one. You do have a chance of getting placed with the best company for you, but it’s no guarantee.

The Best Way: Use a Life Insurance Agent

Find an experienced independent life insurance agent you trust. These agents will take the time to understand your needs and full health picture. They will shop you around to many companies and go the extra mile to ensure you get the lowest rate, every single time. This may include pre-qualification discussions with underwriters at select carriers who are more lenient for your blood pressure, body weight, asthma, skydiving hobby, past DUI or whatever it may be.

Some of these agents also have access to a growing number of no exam options and can advise if these may be good for you. These days, many people can skip the intrusive medical exam and still get high coverage at a very affordable price.

Can You Still Get Life Insurance With Severe Medical Issues?

First off, there is always a life insurance option for everyone, no matter what.

Serious medical issues like cancer, heart problems, or a history of strokes will make your options more limited but still very doable if you go with the right companies and types of policies.

Time is a huge factor.

Simply put, the more time that passed since certain events, the better. For example, if you had a mini-stroke (Transient Ischemic Attack) 7 years ago, and have experienced no on-going symptoms since then, we have carriers that will still consider you for Preferred rates.

For more recent major issues or ongoing chronic conditions, your rates will be higher so the company can balance the risk.

If your situation prevents you from qualifying for traditional, fully underwritten policies, there is final expense insurance, also known as burial insurance. These are smaller whole life policies that usually cap out at around $50,000. They are intended to cover funeral and any last expenses while leaving a little bit to your heirs if you choose.

Lastly, there is guaranteed issue life insurance. Everyone is approved. This will be more expensive and have a waiting period (usually 2 years) before the full death benefit would be paid out. Since everyone is approved, the life insurance companies need some way to protect against someone applying on their deathbed.

Typically, if you own guaranteed issue policy and die during the first 2 years, your heirs will receive back any premiums you paid in plus some interest. This does vary from company to company so consult your agent.

What Type of Life Insurance Policy to Buy

There are a few other factors to be aware of when looking for life insurance.

Are You Buying a Term or Whole Life Policy?

Term life insurance will be cheaper and is considered pure insurance. It typically comes in 5, 10, 15, 20, 25 and 30 year terms. Whole life has an investment component and builds cash value. It covers you untile you pass.

There is one more type Universal life insurance:

Universal life is the other type of permanent coverage. It accumulates cash value and comes with investment options. Universal life insurance is recommended for people who are comfortable with financial investments.

To learn more, see our breakdown comparing term vs whole life.

Do You Need Policy Customizations?

Aside from the base policy, there are a bunch of different options known as riders that can be added at a cost.

One common example is accelerated death benefits. This allows the insured to access a portion of the death benefit while still living if they are diagnosed with certain terminal or chronic issues. Another one is the children’s rider which extends coverage to household children giving them a small amount of coverage.

Focus on the main policy first then discuss with your agent about the available options and costs.

How to Apply & Buy a Life Insurance Policy

If you already know you need the coverage, it’s best to get the process started now. You never know when your health situation might change and then that’s in your medical records, forever. A reasonably priced policy today could be double, triple, or more if 6 months from now if you were diagnosed with something or got a DUI.

Once your policy is issued, there is a mandatory “free look” period that is no less than 10 days, and often times 30 days, depending on the state you live in. That gives you plenty of time to read through all the boring legal mumbo jumbo and be totally comfortable you’ve made the right choice.

Start comparing quotes today on our site and we’re happy to help show you how to buy life insurance in a smart, affordable way.

Best Life Insurance Companies of 2022

• Protective Life Insurance Company
• Penn Mutual Life Insurance
• Banner Life Insurance Company
• Prudential Financial
• AIG
• Mutual of Omaha
• Lincoln Financial Group
• North American Company
• Ameritas
• American National (ANICO)

Not in any specific order. Consult one of our friendly licensed independent life insurance agents to confirm the carrier that will give you the best rates for your specific health and lifestyle profile.