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How to buy life insurance in 2024

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8 mins

There are a number of steps when buying life insurance. The entire process can take several months.

There are few purchases that require more research than life insurance. That’s because there are a number of elements to a life insurance policy. There are also many variables between the dozens of companies that sell life insurance.

Step 1: Determine where to buy life insurance

One of the first decisions you’ll need to make is where you will buy life insurance. For individual policies, there are five options:

Buying from an independent broker

Independent brokers are companies, often found online, that sell policies from multiple life insurance companies but are not affiliated with any companies. They work on behalf of the customer to prepare applications. Using a broker means not working with a licensed insurance agent.

Buying from a captive agent

A captive insurance agent represents one company and is limited to selling only that company’s policies. Their office and marketing materials will feature that one company’s name and branding. In addition to a commission, a captive agent sometimes earns a base salary. Captive agents are sometimes considered employees of the insurance company and may receive benefits in addition to salary and commission.

One of the advantages of using a captive agent is that he or she will have an in-depth knowledge of the policies they sell since they do not have to understand a multitude of different products like independent agents. At the same time, working with a captive agent limits your options. In fact, there’s no guarantee you can even qualify for a life insurance policy issued by the captive agent’s insurance company.

Buying from an independent agent

Independent agents are contracted with multiple insurance companies. They are always independent contractors who are compensated by a commission percentage of their sales. Independent agents will typically not identify with a particular insurer, but will use their own name and branding for their agency.

An independent agent has no obligation to any of the insurance carriers. They can look for the best policy for your needs out of the many carriers they are contracted with.

Buying from a financial advisor who has a license to sell insurance

Many financial advisors and planners also sell insurance, including life insurance. These advisors often partner with select life insurance companies. These professionals typically don’t have as much life insurance knowledge as an agent or broker that specializes in insurance. However, they may be an option if the purchase of life insurance fits in with your overall financial or estate plan.

Buying directly from an insurance company

Many companies have cut out the person in the middle and can sell you a policy directly. This is typically available for term life insurance and is usually sold online. Working directly with the insurer will likely be quicker and more affordable, but you will miss out on the expertise and objectivity of an insurance agent or broker.

[ Related Read: How to Check Insurance Company Ratings for Financial Strength ]

Step 2: Conduct a life insurance needs analysis

Once you’ve determined where to buy, the next step is to determine what you need. The main questions are:

For most people, the answer to the first question will be term life insurance. The length of term you buy (e.g. 10, 20, or 30 years) will depend on your age and how long you expect to have people depending on your income.

There may be situations where it’s advantageous for you to buy whole life insurance. This type of insurance is more expensive, but it will last your entire life as long as you pay the contracted premium.

One of the most important steps in the life insurance buying process — and probably the most difficult — is to determine how much life insurance you need. Many people underestimate how much life insurance is adequate to take care of their family if they should pass unexpectedly. Another mistake is assuming that adequate coverage is too expensive.

One of the best ways to determine the right amount is to conduct a needs analysis or assessment.

This can be done using an online calculator or with the help of a licensed insurance agent.

When doing a needs assessment, you may be asked to consider some of the following questions:

  • Who depends on you financially or who do you want to provide for?
  • How long do you need to support dependents?
  • Do you have children who may go to college?
  • How much debt will you leave?
  • How much do you have saved?
  • Do you need to help your spouse save for retirement?
  • Are you part or full owner of a business?

Step 3: Comparison shop

Dozens of companies offer life insurance. Policies have varying degrees of features. They can also vary in cost. Therefore, you should never limit your search to one policy or recommendation.

When you compare options, assess more than just cost. Survey all the various contract provisions, especially underwriting standards. Companies may underwrite the same person differently because they assess risk factors differently. Differences in underwriting ratings can greatly impact the premium you pay.

For example, some insurers will minimize the effect of high-risk hobbies on your underwriting. This is especially true if you have a license or certification and a certain amount of experience. Other companies will consider conditions like diabetes to be lower risk.

Insurance companies also treat tobacco use differently, so if you’re a current or former smoker, you want to look for the best tobacco use rates. Also, many companies will consider you less of a risk if you’re not a regular smoker but only enjoy an occasional cigar.

Also, review each company’s optional riders. You should also look at the insurance company and ensure that it’s a highly rated, reputable firm.

Step 4: Apply for coverage

Once you’ve decided on a policy, the next step is completing the application form. The form will be several pages. In addition to basic information, life insurance applications ask several health-related questions. You will need to provide information such as conditions you have been diagnosed with, medications you are taking, and family health history.

You or your agent will submit the form along with supporting documentation, including proof of identity, citizenship, and age; proof of income, and proof of residency. You will also have to authorize the release of medical records.

Step 5: Go through underwriting

Once the insurance company receives and reviews your application, they will order a medical exam. This is a key part of the underwriting process. It helps the insurance company assess your health risk. The exam can also uncover underlying medical conditions, such as diabetes or HIV, that will affect your qualification for coverage.

The insurance company will arrange the medical exam. In most cases, it can be conducted in your home. The exam takes about 20 to 30 minutes.

The exam includes a questionnaire filled out by a medical professional asking you a series of health questions. You will be asked about:

  • Health conditions you have
  • Medications you take
  • Past hospitalizations
  • Medical procedures you have had
  • Your family medical history
  • Lifestyle habits such as smoking, drinking, and drug use

The examiner will also:

  • Measure and weigh you
  • Measure your blood pressure and pulse
  • Take blood work to check for cholesterol, glucose, protein, and HIV
  • Take a urine sample to check certain levels as well as possible drug use

The insurance company will review the results to determine if you are insurable. The results are also used to set your premium rate. It could take up to a few months for this process to be completed.

Underwriting is the process of evaluating the risk posed by an insured. It determines whether an applicant qualifies for coverage. It also determines the amount of premium the policy owner will pay. If you pose a higher than normal risk of dying at an earlier age, the insurance company will charge more in premium. If you pose no such risks, your premium payments will be lower.

Underwriters will review your application, medical exam results, and other information to assess your health risk. They will consider your:

  • Age
  • Gender
  • Height and weight
  • Overall health
  • Family history
  • Smoker status
  • Alcohol use
  • Driving record
  • Hobbies
  • Foreign travel
  • Profession

Step 6: Get an offer

Once the insurance company has finished underwriting your application, it will make an offer for coverage. The offer will include how they rated you on their underwriting scale, the amount of premium your policy will cost, and any exclusions on your policy.

If you don’t find the offer acceptable, you can reject it and start the process again. If you work with an independent agent, they often submit multiple applications to different carriers and help you select the best offer.

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published March 17, 2021
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