20 Things You Need to Know and Consider Before Buying Life Insurance
This information will help you decide how much coverage you need, how long you’ll need it, and what you can afford to pay.
There’s no question that buying life insurance is a big deal. After all, no one wants to take out the wrong type of policy. Nor pay too much for the right type of policy.
Knowing that, here are 20 things you’ll want to look for before buying life insurance.
- You must satisfy certain requirements if you want to insure someone. You can buy life insurance in someone else’s name. But you must prove you're in some way dependent on that person and you would suffer financially if he or she were not around.
You’re also probably going to have to get that person’s permission. Life insurance companies must access the medical history of someone who’s looking to be insured. According to the Health Insurance Portability and Accountability Act, that person (“the insured”) usually has to sign a written consent form to release his or her medical records. And if the insurance company you’re considering doesn’t require this kind of consent? Typically, it’ll still require the insured to sign off on the new policy.
The opposite is true as well. This means that your employer can’t take out a life insurance policy on you unless you give them written permission.
- If anyone turns you down for life insurance, look somewhere else. Companies look at a whole host of information and utilize a variety of methods to vet who they will insure. Just because one provider turns you down, you shouldn’t assume another provider will come to the same conclusion.
Shopping around is a good idea. Doing so will allow you to buy a life insurance policy that offers the best coverage or lowest rate. QuoteWizard can help you find a great policy and the best rates by connecting you with our network of experienced agents that specialize in life insurance.
- If you’re looking to insure yourself, make sure you actually need it before you buy it. If no one is financially dependent on you and if you have enough money to pay for your final expenses, it’s a pretty good bet that you don’t need this type of insurance.
If, on the other hand, there are people—a spouse, children, parents, siblings—who depend on you financially, life insurance may well be a worthwhile expense.
- Term life insurance or whole life insurance? The two main types of life insurance are pretty different, so you’ll probably want to spend some time studying them before choosing one over the other.
Term life insurance tends to have lower premiums associated with it, provides a person with coverage for a set number of years, and doesn’t build up a cash value that can be borrowed against or withdrawn. Whole life insurance costs more, accumulates a cash value that can borrowed against or withdrawn, pays out whenever one passes away, and provides protection as long as the premiums are paid.
Note: there are three kinds or categories of whole life insurance to consider, too—whole life, universal life, and variable life.
- Your beneficiary doesn’t have to be financially dependent on you. Some people buy life insurance so that, upon their death, a charitable contribution will be made to an a beloved organization. And that’s completely acceptable.
- And if your beneficiary is a dependent, determine exactly which sources of income would need to be covered if you passed away unexpectedly or in an untimely manner. At the very least, you’re going to want to replace the income you currently generate for these loved ones. You may also want to provide them with extra money that can be used to help them relocate or further their education.
- Don’t forget these expenses while calculating your coverage needs. Remember to factor in on-going expenses like mortgage, tuition, or daycare. Burial costs and estate taxes are two examples are also often left out. Long-term expenses or goals like college or retirement savings are other examples.
- Don’t think of a life insurance policy as an “investment” Some types of life insurance accumulate a cash value over time that you can borrow against or withdraw. But you’re probably not going to want to look at life insurance as the same kind of investment as a mutual fund. If an agent tries to twist your arm with a life insurance policy that promises a high return, ask for that guarantee to be put into writing.
- Know what is and isn’t covered by a life insurance policy. Most policies won’t pay out if the policyholder dies due to war, service in the military, suicide, or airplane accidents.
- Educate yourself about the many purchase options or riders that can be added to a standard policy. Not happy with the basic life insurance policy that’s being offered to you? You’ll likely be able to attach additional benefits to it (although they’ll come at an additional cost, too). The “riders” that allow you to do this can be pretty beneficial, depending on your situation, so read up on them—or ask your agent about them—before you finalize your purchase.
Some riders let you gain access to your benefits before you die. Another type of rider lets you use your policy’s cash value to pay expenses related to long-term care.
- Talk to family and friends if you need recommendations regarding insurance companies and agents. A fairly obvious piece of advice, admittedly. But that doesn’t prevent it from also being useful.
If you’re unsure as to which company or agent you should go with when it comes to buying life insurance, ask friends, family, and other sources.
- Make sure any companies or agents you’re considering are licensed in your state. This can be accomplished by checking with your particular state insurance department.
- Be prepared to answer some questions about your health. Don’t be surprised if you’re asked to answer some health questions before you’re given the green light to buy life insurance. Providers often require this so they can determine which policy to offer you and the premium that goes along with it.
Providing false health information could cause your policy to be cancelled. It could result in your beneficiary or beneficiaries not receiving their benefits. So answer these questions as honestly and accurately as possible.
- Carefully consider all aspects of the premium payments that are attached to a particular policy. A couple of questions to ask yourself before going with one plan over another: can I afford the initial premium? Also, if the premium increases later, will I still be able to afford it?
- Make sure you understand the renewal policies related to the plan you’re considering. It’s usually possible to renew a term insurance policy for additional terms. It’s also possible your premiums will increase with each renewal. So, ask your agent what will happen to your premium payments if you renew your policy before you agree to do so.
- Read the fine print Or, rather, carefully read through your policy once it’s in hand. After doing so, you should be able to answer a number of important questions that are related to it, such as: will my premium payments or benefits very from year to year? A couple of others: how quickly will my benefits accumulate, and how much will they accumulate over time?
As always, if anything seems unclear, ask your agent.
- Don’t throw away that piece of paper, or that receipt. Whenever you’re handed a piece of paper that explains your policy or the various kinds of coverage it provides, keep it. Also, store it alongside the actual policy—wherever that may be. On a related note: don’t be shy about asking for printouts or receipts. The latter is especially important to remember whenever you give money to an agent or broker. (And, of course, put those receipts in the same place you put your policy and other related documents.)
- Exercise caution before canceling your existing life insurance policy. Replacing an insurance policy can be expensive, so don’t cancel an existing life insurance policy while you search for a new one. Wait until you’ve received and had a chance to thoroughly review both your new policy before you even think of getting rid of the old one.
You may already know this, but for those of you who don’t: you have a certain period (often 10 days) to study and consider a new policy. If you decide a policy isn’t for you, you can return it to your agent to have it canceled, and then receive a refund.
It’s possible you won’t have to cancel your current policy even if you take out a new one. Chat with your agent to find out whether or not this is true in your case.
- Don’t be afraid to get help from an insurance agent. It’s their job to help you understand the terms of your coverage. So don’t shy away from picking their brains if you’re at all confused about any aspect of your policy.
- Pull out your policy every few years and review it. You’ll want to revisit your policy on a semi-regular basis. Doing so can help you keep up with changes in inflation, your income, and your general financial needs.
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