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Buyers Guide: Life Insurance Made Easy

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This article will cover what to expect, give you some tips to help compare your options and make the life insurance buying experience more convenient and stress free.

Senior couple at the meeting with insurance agent listening to an offer.

Introduction

You’ve made a decision: you’re going to buy life insurance.

You’ve done your research and thought about what you need the insurance to cover and accomplish. You’re ready to pick up your brand new shiny policy and take it home. But wait: is buying life insurance that easy?

The answer is, it depends on your circumstances. If you are trying to buy a more complicated product, or have various health conditions, the process can be lengthy. If you are buying something simpler like a term policy and are in outstanding health, the process can be quite quick. The main thing to remember is to be patient and try to go into the process with the right expectations. 

Where to buy life insurance.

There are three primary ways to purchase a life insurance policy. Direct from an insurance company or insurance agent, from an insurance broker who can compare different companies for you, or electronically from an online brokerage. 

Direct Insurance Agent

The first and simplest option to get a life insurance policy is to buy it directly from an insurance carrier or company. You would most likely be working with an insurance agent who primarily represents one insurance company. Buying directly from an insurance company or agent could be beneficial if you need help and product recommendations. They would most likely have the answers to any specific product questions you had. You may also receive a more cohesive service experience because the agent is in direct communication with the various people who will be handling your application.

If you’re considering going the direct route, make sure you choose a company that has a good financial strength rating. Most companies advertise their financial strength rating, but you can also ask your insurance agent if you’re unsure. A strength rating of A or higher is ideal. The financial strength of an insurance company is important because life insurance policies are long-term financial tools. You want to make sure that the company will be around more than 10 years to pay out the policy if a claim is filed. 

Another point to remember if you’re considering buying directly from an insurance company is that they will be promoting their company’s product, so you may be missing out on other options.

Insurance Brokers

If you like to shop around and get multiple prices and offers, working with an insurance broker may be a good option for you. Insurance brokers represent multiple companies and can search for a policy that could suit your specific circumstances better. For example, if you have a certain health condition, they can explain why insurance company A may be a better option than company B. 

Insurance brokers can give you multiple options to choose from, but they may not have the depth of product knowledge compared to working directly with a single insurance company. This may be especially true with more complicated products. 

Online Brokerages

As the use of technology has expanded in the financial services industry, so too has the rise of online insurance brokerages. These online platforms can make buying life insurance quick and easy, especially with less complex products, without the hassle of dealing with multiple salespeople. 

Online brokerages can help you quickly find quotes from multiple insurance companies, which can be helpful if you are trying to get the pros and cons of different providers. This can also be a good way to plan out a budget before buying your policy. Remember though, the quote is just an estimate of how much the policy will cost. The actual price isn’t determined until later in the process. 

While using an online insurance brokerage can make the process more streamlined, it also has some limitations. The main drawback is generally you don’t have a lot of support if you’re unsure of which product to get. An insurance agent or broker will generally work with you to find out what type of coverage would be best suited for your situation, but with an online brokerage the research and decision making is all left up to you. If you prefer working with someone, it is still a good idea to use an online brokerage for research beforehand. 

What to expect during the buying process.

What is the buying process?

Buying life insurance can be broken down into four main parts:

  1. Needs assessment 
  2. Application
  3. Underwriting
  4. Offer

The length of the entire process can vary, with the low end being a few weeks and the high end being a few months. This all dependent on how complicated your health history is and how quickly the insurance company receives your medical records.  To expedite the process, you may want to call your doctor’s office after you submit your insurance application to notify them that medical records are going to be requested. Typically, you are required to sign a medical information release form with the insurance application, but your doctor’s office may want a release form signed as well.

Needs Assessment

If you’re working with an insurance agent or broker, they’ll probably walk you through some type of needs assessment. This process facilitates more personalized recommendations and ensures the policy is suitable for your unique situation and goals. They’ll ask you what type of policy you’re looking for and how long you need coverage. They’ll probably also ask some broader questions like where you work, whether you own a home and if you have any dependents. This is all to get a better idea of your needs and to narrow down what type of policy would be the best fit. 

Application

To be considered for coverage by an insurance company, you must submit an application. It includes information the insurance company needs to determine the risk they are taking by insuring you. If they deem a person is too risky, they might decline the application. 

An insurance application typically includes four sections:

  1. Basic Personal Information – like age, address, Social Security number and contact information.
  2. Plan Information – including s the type of policy (term or permanent), how much coverage is being applied for and a listing of the beneficiaries.  
  3. Financial Information – typically, this includes current employment status, approximate annual income, any outstanding debt, asset values and banking/payment (routing and account numbers, draft dates, etc.) information.
  4. Medical Information – may include current or previous medical conditions, family health history, recent surgeries or procedures and current prescriptions.  

Applications can either be completed in person using a paper application or electronically via an online portal and e-signature. Some companies have an abbreviated application that can be done over the phone and completed with a voice signature. Generally, the more insurance you are applying for and the more complicated the product, the longer the application.  

Underwriting

 Quick Tip

For a speedier underwriting decision, you can call your doctor’s office and try to have them send over the requested medical records ASAP (this is not required but can be a helpful and proactive step). 

During the underwriting process, the insurance company reviews your application and medical records to assess your risk factor. The underwriter then decides whether to accept or decline your application and, if accepted, price your policy according to your risk level.  If you go through a full underwriting process (sometimes required, especially when requesting large amounts of coverage) you can expect to take a paramedical exam.

It typically includes a health questionnaire and records your height, weight, blood pressure and pulse. A blood and urine sample are also taken. These are performed by a third-party paramedical company that usually come to your home or office for your convenience. If you prefer, you can opt to go to the paramedical company’s office for the exam. The insurance company often requests medical records from your doctor as well. This is the step in the process that usually takes the most time and causes the most delays. 

If the full underwriting process seems like too much of a hassle, you may opt for simplified underwriting. With this process, you may be able to skip the paramedical exam if you meet the health questionnaire requirements. Some insurance companies may charge you a higher premium for using the simplified process, so be sure to double-check the cost with your agent or broker. 

Offer

If you receive an offer it will include your assigned risk rating, how much coverage you can receive and the cost of your premium. If the insurance company finds you are in exceptional health, they may offer you more coverage. In contrast, if you are in poorer health than expected, they might offer you less coverage than what you applied for. Similarly, the premium may be lower or higher than the initial quote. At this time, you can make changes to the policy and adjust things like the coverage amount or the length of the term. When you’re completing the insurance application, make sure to tell the agent/broker that you want to review the offer before any coverage is issued. This will allow you to make any last-minute changes and to review and confirm you’re getting the coverage you wanted.

Other factors to consider when buying life insurance.

Conversion Options

Some people like the price of term insurance or have a current short-term insurance need they have to fill. They are interested in looking at a permanent policy but are unsure whether they need it right now or can afford it. 

If you’re buying a term policy but think you might want a permanent policy in the future, then selecting a term policy with conversion options is extremely important. Conversion options allow you to convert a portion or all of your term policy into a permanent policy – without having to reapply or go through new underwriting. Using a policy conversion also retains your original health rating.  All you must do is complete paperwork stating how much of your term policy you want to convert. The new price is based on your age at the time of conversion (the earlier you convert the policy the cheaper it will be), and how much of your term policy you want to convert. For example, if you had a term policy with a death benefit of $500,000, you could convert either the entire amount or smaller amounts (let’s say $100,000) over a period of time, into a permanent policy. 

Many companies allow you to make multiple conversions, up to the original benefit amount. Generally, you can convert your term policy any time after the one-year anniversary of the policy and before year 20, but be sure to check with your insurance company about their rules. 

The main benefit of having a policy with conversion options is the ability to lock in your insurability. Because insurability is based on risk factors like age and health, locking it in when you are younger and presumably healthier just makes sense. This way, you are guaranteed the option to convert your term policy regardless of your current health.  

To illustrate this, let’s walk through an example. A person had a 20-year term policy with a preferred health rating. Ten years into the policy, they are diagnosed with cancer, a condition that would make them uninsurable for new life insurance through many companies. The person wants to keep their coverage past the original 20-year term, but they can’t apply for a new permanent policy. They can convert their entire term policy into a permanent one with the original preferred health rating, even though they are currently uninsurable. 

If you’re shopping around for a term policy, make sure you are also comparing their conversion options. It’s a powerful feature that can give you more flexibility in the future if you ever need it. 

Riders

A rider is an additional feature that the policy provides other than the death benefit. Riders vary from company to company and can be used to customize your policy to more closely suit your needs. Some riders come with a policy at no additional cost, while others can be expensive. When selecting a policy, check to see what types of riders are available and how much they cost. Make sure that any rider the insurance agent/broker suggests is thoroughly explained and helps accomplish your goals and adds value. 

Bottom Line

When buying life insurance, because it’s a contract, the more options you can give yourself the better. Once your policy is issued, you generally don’t have a lot of flexibility to change things. That’s why it’s important to use multiple options and resources when researching. Utilize brokers to compare the pros and cons of various companies and see what additional features, like riders and conversion options, they have. Be prepared for all of the steps you’ll have to take when going through underwriting and the application process. And don’t be afraid to ask your insurance agent, broker, or other providers for important updates.

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