If you have a spouse or dependent children who rely on your income, protecting them with life insurance can offer peace of mind by ensuring they'll be cared for if something happens to you. But buying life insurance is different from buying other types of insurance, where you get a quote, make a payment and are covered within a few minutes. Getting life insurance is a multistep process that can take several days or weeks to complete. Here's what you need to know.
1. Calculate How Much Life Insurance You Need
Before buying a policy, you must decide how much coverage you need. You might have heard about formulas for calculating death benefits, such as buying 10, 20 or 30 times your annual income or 10 times your salary plus the cost of college for each child (if you have dependent children).
However, that doesn't take into account your unique financial situation, including how much debt you have, how long you want to replace your income and other factors. You may be able to estimate your needs more accurately by adding up the expenses you want your life insurance payout to cover, including:
- Current debt: The average mortgage balance in the United States was $244,498 in 2023, and the average auto loan balance was $23,792 in that same time period, according to Experian data. Life insurance can help your loved ones pay down all types of debt, including your mortgage, auto loans, credit card balances, student loans and personal loans.
- Income replacement: Your salary doesn't just pay the mortgage; it also covers living expenses such as child care, utilities, transportation, groceries and more. If you want your loved ones to maintain the lifestyle to which they're accustomed after your death, you need to have enough life insurance to replace your income. Determine how many years your family would need financial support and multiply your annual salary by that number.
- Future expenses: The cost of a college education, wedding, long-term care for a spouse and other expenses can be substantial. For example, in-state tuition and room and board at a four-year public college or university will set you back more than $27,000 per year, according to the Education Data Initiative. The average cost of a wedding was $35,000 in 2023, according to The Knot data. If you want your life insurance payout to cover specific expenses, include those in your calculation too. You may also want to factor in funeral costs, which average $8,300 for a funeral with casket and burial and $6,280 for a funeral with cremation, according to the National Funeral Directors Association.
Add everything up, and that's how much life insurance you may need. If you have savings and investments your family can use to help offset their expenses, you may choose to factor that into your calculation. But if the money is earmarked for retirement, it may be best to exclude it from your calculation so it's still available for your spouse when they retire.
2. Decide What Type of Life Insurance Fits Your Needs
There are two main types of life insurance: term life and permanent life. Additionally, there are two kinds of permanent life insurance—whole and universal. Here's how they work.
Term Life
Term life insurance lasts for a set amount of time, known as the term, which may range from as little as one year up to 30 years or more. Term life insurance provides a death benefit to your beneficiaries if the policy is active when you die, but if you're alive when the term ends, the policy expires, leaving you without coverage. Term life tends to be less expensive than permanent life insurance.
Whole Life
Whole life insurance provides you with lifetime protection. Unlike term life, it has two components—a death benefit and a cash value account. The cash account grows tax-deferred, at a guaranteed rate, and you can withdraw or borrow money from it while you're alive. However, doing so can lower the amount your beneficiaries receive in the event of your death. The premium for whole life remains fixed for the life of the policy.
Universal Life
Like whole life, universal life insurance provides lifetime coverage, a death benefit and a cash value account, but it offers more flexibility than whole life. You may be able to change the death benefit or raise or lower your premium after purchasing the policy. The interest rate on the cash account is variable, but some universal life insurance policies have guaranteed minimum rates, to help protect against market fluctuations.
Life Insurance Riders
Life insurance riders are optional add-ons you can include with your policy for extra protection—usually for a fee. They allow you to personalize your policy to meet your specific needs. For example, an accelerated death benefit rider gives the policyholder access to part of the policy's death benefit while they're alive if they're diagnosed with a terminal illness. Other common life insurance riders include accidental death, waiver of premium and guaranteed renewability.
Riders can typically be added to term or permanent life insurance policies, but availability varies by policy type and insurer.
3. Compare Multiple Quotes
Different insurance companies often have different rates for the same coverage. Shopping around and comparing quotes from multiple providers helps ensure you get the lowest rate possible. You can get quotes in a few ways, including:
- Comparison websites: Life insurance comparison websites allow you to compare quotes from multiple insurers simultaneously.
- Insurance company: Some insurers have an online quote generator to provide instant quotes.
- Agent or broker: Working with an agent or broker can help simplify the process of purchasing life insurance. Agents represent a single insurer while brokers represent multiple insurers. Both can provide quotes, answer questions and provide guidance based on your individual situation.
4. Submit an Application
The only way to know for sure how much a policy will cost is to submit an application and go through the underwriting process. You'll need to answer questions about your lifestyle and health history, including your age, weight, gender, occupation, overall health, family health history, hobbies, tobacco use and more. The insurance company will use the information to assign you to a rate class based on the risk you present.
5. Complete a Phone Interview
Depending on the insurer, you may also need to complete a phone interview after submitting your application. The company representative may verify the information you provided and gather additional information about your health history and your family's medical history. These phone conversations usually take about 20 to 30 minutes. The insurance company may also schedule a time for your medical exam—if required.
6. Get a Medical Exam (if Needed)
Many insurers require an in-person medical exam, which typically involves a health professional coming to your home to assess your weight, height, BMI, blood pressure and pulse. They may also collect blood and urine samples to detect the presence of nicotine and drugs in your system and determine your cholesterol and glucose levels. Depending on your medical history and other factors, the insurer may order additional testing.
If you don't want or think you won't qualify for coverage with a medical exam, you can purchase guaranteed issue insurance, but it will cost more and coverage limits are typically lower.
7. Wait for an Approval, Then Finalize Your Policy
When your application, interview and exam are complete, the insurance company will review your information and make a decision. It typically takes a few weeks to hear back. When you do, you'll find out if you were approved, how much coverage you were approved for and how much your policy will cost. In some cases, you may be approved for less coverage than you applied for because of information you provided on your application or the insurance company discovered during your medical exam. Pricing may be more or less than you were initially quoted.
If you decide to purchase the policy, you must accept the terms and pay the premium. Your policy won't be active until you accept the terms and make your first premium payment.
Frequently Asked Questions
The average cost of a term life insurance policy for a healthy 30-year-old is about $170 per year, according to LIMRA. The price you'll pay varies depending on multiple factors, including the type of policy you choose, the amount of coverage you select and the insurer. Lifestyle and health factors, such as your age, occupation, hobbies and more, also play a significant role in the cost of life insurance.
In general, younger people and people with better overall health pay less for coverage than older individuals and those with health challenges.
This is a question only you can answer. If you're single with no dependents, you can possibly skip life insurance. However, you may want to consider purchasing a small policy to cover funeral expenses. If you have a spouse or dependent children who rely on your income, life insurance can be worth it and provide a financial security net for your loved ones after your death.
In many—but not all—cases, you can convert term life insurance to whole life insurance. If you convert your policy, the cash value account will grow tax-deferred and can be used while you're alive. Plus, the coverage will remain in effect for your lifetime as long as the policy is in good standing. Converting a term life policy to whole life may be a good idea if you want to leave an inheritance for your loved ones. However, your premium will increase (sometimes significantly) after the conversion, so it may not always be the best option.
The Bottom Line
Purchasing life insurance may take a little more time and effort than buying other types of insurance, but it's worth it, knowing your loved ones will be protected if something happens to you. Keep in mind, some states allow insurers to factor your credit-based insurance score into their calculation when determining premiums. If you live in one of those states and have good credit, you'll likely pay less for coverage. You can check your credit score for free from Experian before starting the search for life insurance to get an idea of how your credit may affect the cost of insurance.