How to Buy a Life Insurance Policy

What is the best way to go about buying a life insurance policy? What kind should I buy? What things need to be considered? Should I contact an agent, or should I just buy it online? These are just a few of the questions that you might be asking yourself if you think that you might need life insurance.

The process of purchasing a life insurance policy is actually quite simple. In fact, there are some policies that you can purchase directly online, without ever talking to an agent and without ever taking a medical exam. There is one company that offers up to "$250,000 of term life insurance coverage in as little as 15 minutes!". Other policies might require a paper application, a medical exam and a more extensive review of your health, driving and (possibly) financial records. But even a fully underwritten policy like that is relatively easy to buy, especially when compared to the task of determining how much and what kind of life insurance to buy. You can get quotes on term life insurance online, and a good insurance agent can take most of your application information over the phone, schedule your paramedical exam and have the paperwork mailed out to you. So the process is easy, once you determine what you are actually going to buy.

In practical terms the very first question that you need to answer is "For what purpose am I buying life insurance?". Is the coverage being obtained so that your family will have money to live on in the event that they lose you (and the income that you used to earn)? Is life insurance needed to cover "final expenses", e.g. funeral costs? Are the proceeds of a life insurance policy needed to settle an estate or create a charitable gift? Once you have determined the "why" behind your life insurance need, you can move on to the next question, which is "How much?".

Determining an amount is fairly easy if your need is for final expenses, estate settlement or even charitable giving, so I won't spend time here discussing it. More complicated, though, and far more common, is the need for a family to have a death benefit which will be used to replace the income lost if the breadwinner dies. For this purpose, it makes sense to have a death benefit equal to somewhere between 10 and 25 times the income that would be lost. This may seem like a lot of money, but when you factor in things like inflation and "safe" withdrawal rates, it is not. And while I recommend that everybody purchase as much coverage as they need, remember, some coverage is better than none at all. So if you can't afford "full coverage", it still makes sense to provide some protection for your family.

Now that we know "why" and "how much" it is time to ask the question "What kind of life insurance should I buy?". A great deal is made among the "financial gurus" in the media as to which kind of insurance is better, "term insurance" or "permanent insurance". I will suggest to you right here that the very best kind of life insurance is the kind that is in force the day that you die! Trust me when I say this; your grieving family is not going to ask me if the death benefit came from a whole life policy, a term insurance policy, a universal life policy, etc. when I deliver the death claim. It will not matter. What will matter is that there is a check to be delivered. And for that to happen, the policy has to be in force when you pass away.

I can argue the virtues of both term insurance and permanent insurance until the proverbial cows come home, but it doesn't matter. Both have their uses and both are good. Buy the type that you can easily afford. Buy some of both if you can. But make sure that you buy enough! It makes no sense to buy a $100,000 whole life policy if your family will need $1,000,000 to survive. I don't care about the "cash value" you are building up, and neither will they. On the other hand, if you can afford the premiums on a $1,000,000 whole life or universal life policy, by all means, buy it. There are great benefits to be had if you do. But don't skimp on the death benefit just to get there. Besides, when you buy your term insurance from a good agent, he is going to make sure you buy convertible term insurance so that you can, as time and money permit, convert some or all of it to permanent insurance.

In the end, my advice is always to buy "full coverage". That is, what ever the insurance company is willing to sell you. Most of us buy full coverage on our house and on our car; why wouldn't you want it on your life? The "type" of insurance that you buy is, in my opinion, a distant second consideration.

There you go; now that you know how much life insurance you want, why not get a quote on term life insurance as a starting place and then contact me to discuss it?