This post originally ran on 4/3/2013, before anyone was reading this blog. I’m re-running it now with updated content because I think it’s an important topic.
Welcome to Part 4 of a four-part series on life insurance that will explain its importance and guide you through the process of purchasing a policy that’s right for you and your family. You can follow along with the entire series here:
-Part 1: How to know when you need life insurance
-Part 2: How much life insurance do you need?
-Part 3: How to choose the right type of life insurance
-Part 4: A step-by-step guide through the process of actually buying life insurance
Congratulations! If you’ve worked through Parts 1-3 then you’ve already done most of the hard work and you’re just one step away from securing one of the foundational pieces of your family’s financial security: life insurance.
If you haven’t already worked through the first 3 parts, I would definitely suggest doing so before continuing with this article.
Today we’ll go through the steps needed to actually buy a life insurance policy that fits your needs at the best possible price.
Step 1: Get some life insurance quotes on your own
Below I’m going to suggest that you look into working with a professional, but the first step should be to do a little research on your own. The reason for this is that while a professional can potentially add value with their knowledge of the industry, you need to make sure you have enough of an understanding of the options available so that you aren’t misled (like I was when I first purchased life insurance).
My favorite site to get life insurance quotes, and the one I actually used when going through the process, is term4sale.com. I have no affiliation with the site in any way whatsoever. I’ve simply found it useful and accurate for myself.
When you get to the site, you want to enter your information into the “Instant Life Insurance Quote” box you see right on the front page. Most of this is pretty straightforward, but here are a few notes that might be helpful:
Type of Insurance: Choose the “Guaranteed” option for the term you have decided upon. So if you have decided you need a 30-year term, choose the “30 Year Guaranteed” option.
Insurance Amount: If the exact amount you need isn’t an option, just pick the closest amount to it. If you don’t yet know how much you need, you can work through the steps here: how much life insurance do you need?
Minimum Life Company Rating: Choose the “Quote all with Best Rating” option. This will only give you quotes from companies with strong financial ratings.
Once you’ve entered your information and clicked the “Compare Now” button, you will get a list of companies offering life insurance in your area and the initial quote for what that company’s policy will cost.
You can do this for each parent and print out the list of quotes. Please note that these quotes are not any kind of guarantee of the premium you would have to pay. You’ll have to go through a medical exam before getting a final offer, so the quotes simply serve as a useful starting point for both cost and what companies you could purchase from.
Step 2 (suggested): Find an independent life insurance agent to work with
This is not something I did personally but I think it’s a good way to go for most people. A good independent life insurance agent will be able to ask you some questions about your personal situation, including most importantly your health situation, and possibly have some insight that you wouldn’t get if you were on your own.
You’ll want to make sure the agent you find is independent, meaning they aren’t affiliated with any specific life insurance company. That will allow them to sell you a policy from anyone rather than trying to push the policy of a single company.
One way to find an independent agent is again through term4sale.com. When you get to the page with the list of quotes, there’s a button near the top that says “Find an Agent”. That will bring you to a list of independent agents you could contact.
You can also Google “independent insurance agent” + your state. That should give you plenty of options to sort through.
I would call a few and make sure to be picky. Trust your gut. If it doesn’t feel like they’re genuinely interested in your situation, or if they feel pushy, you can get off the phone and call the next one. There are plenty of these people out there and there’s no need to work with someone who makes you feel uncomfortable.
If at any point you’re working with an agent and start feeling unsure about the advice they’re giving you, you can go back through the following posts to reaffirm your belief in what you’re looking for:
-How to know when you need life insurance
-How much life insurance do you need?
-How to choose the right type of life insurance
-Why whole life insurance is a bad investment
Step 2 (alternative): Call the insurance companies directly
There’s no requirement that you go through an insurance agent to purchase a policy. You can simply call the insurance company and do business with them directly. That’s actually how we ended up buying our current policies.
I would mostly recommend this for people who have a strong understanding of what they’re looking for and have a clean medical history. I bring up the medical history because any kind of chronic illness or possibly recurring condition in your past can raise red flags for the insurer and either increase your premiums or make it difficult to get coverage. Those are the situations where a good professional could be especially helpful in finding the best deal available.
If you are going to go it alone, I would spend some time researching the companies on your quote list before deciding who to call. Just by nature of the search you did above, you’ve already limited your list to companies with a strong financial rating, so at this point you’re likely choosing based on price and on the customer service you experience when calling them directly.
You can also look through each company’s website to get a better feel for them. When we purchased our policies, we ended up going with the cheapest policy in our list of quotes. But first I made sure to visit the company’s site and see that they had been in business for over 100 years (WOW that’s a long time!). I also sent a quick email to a financial planner friend of mine to verify that they were legit. Both of those things helped me feel sure I was making a good decision.
Step 3: Make sure you ask about the following characteristics
If you’re going with an independent agent, they’re going to provide you with their own list of quotes. The very first thing you should do is compare that with your own list. If there any big differences, particularly if you have any cheaper options in your list, you should ask why.
There may be valid reasons for a difference (health issues being one potential reason), but there may be some bad reasons as well. The agent may simply not be able to sell you the cheapest policy, in which case it might make more sense to either find another agent or go directly through the company (see above). You just want to make sure you’re getting the best deal for you and not the best deal for the agent.
But whether you’re going through an agent or directly through the insurance company, you’ll want to ask about the following things:
Confirm that they are quoting you for a “level term guaranteed” premium. This means that the premium will remain exactly the same each year for the duration of the policy.
Get a quote for the annual price. If they quote you a monthly or quarterly price, ask for the annual. The annual price is cheaper than paying monthly or quarterly, and having the annual price across all offers will allow you to make a fair comparison.
Ask about the extra cost of a “waiver of disability rider”. This extra attribute would waive premium payments during any period you were disabled.
Ask about any extra cost to ensure that you would be able to convert the policy to whole life any time before the term ended. You probably won’t need this, but it’s likely either already included in the price or a small additional cost and having the option can be nice.
Step 4: Choose a company and go through the application process
You have your quotes. You’ve done your research. Now you’re ready to choose a company and go through the application process.
If you’re working with an agent, they’ll guide you through the process.
If you’re going it alone, you can simply call up the insurance company and they’ll start the process with you.
Regardless, you will have to fill out an application with a lot of medical questions and go through a quick medical exam performed at your choice of your home or your office.
Two notes about the application process and medical exam:
I would strongly advise against any insurance company that wants to provide coverage without a medical exam, unless it’s your only option. Those policies can be significantly more expensive and the cost just isn’t worth the convenience of skipping the exam.
Be SUPER honest in your answers to every single question on the application and during the exam. If the insurance company finds out you were dishonest about anything, the entire policy can be dropped and you can be left unprotected. No matter how damning you think the information is, you have to provide it.
This process, along with the subsequent underwriting process (which is where they analyze your information and determine their final offer), will likely take a few weeks. Even after your medical exam, you may get a call or notice asking some more questions about your medical history. This is a normal part of the process, so don’t worry about it. Just answer all questions as honestly and completely as possible.
Step 5: Finalize your life insurance policy
Once all the underwriting is complete, you will get an official policy with the final payment terms. Read through everything to make sure it fits your expectations.
Hopefully the price will be in line with your quotes from above, but if there’s a significant difference, contact the company to understand why. If it’s a health issue, you may want to check term4sale.com again to compare quotes at the lower health rating, just to make sure this company is still competitive.
You can also ask the company for the specific health concerns they have and potentially dispute them. We actually did this with our own policies. One of our offers came in significantly higher than the initial quote because of something in the medical history that concerned them. We contacted our doctor and had him clear up the confusion with the insurance company and ended up with a much cheaper premium. This may or may not work for you, but it’s definitely worth a shot.
If the premium quote comes back higher and the reason has nothing to do with you or your health, then you may want to question the company’s honesty. This is unlikely to happen, but if it does then it’s probably time to check with a different insurer.
Assuming everything comes back as expected, you will need to pay your first premium. If possible, pay the full annual premium all at once. This is the cheapest option. Regardless, set up your payments to come out of your checking account automatically so you don’t accidentally miss one. If you’re paying annually, or even semi-annually or quarterly, consider setting up a sinking fund for your next payment so that you’re sure to have the money available when you need it..
Step 6: Revisit your life insurance needs from time to time
Congrats! You’ve made it through a really intense process and you now have enough life insurance to protect your family. That’s a really big accomplishment and you should be proud.
Hopefully you should be set for at least a few years, but as your circumstances change you may need to revisit your life insurance needs. There may be additional children, a new house, or any number of other circumstances that could change the amount of protection you want. Any big life changes should spur you to take another run through your life insurance needs calculation to make sure you’re still adequately covered.
But for now you can sleep tight knowing that you’ve got one of the building blocks of your family’s financial security solidly in place.
Photo courtesy of Raphael Goetter
The post A Step-by-Step Guide Through the Process of Actually Buying Life Insurance appeared first on Mom and Dad Money.