Buying a life insurance policy may be one of the biggest financial decisions you will ever make in your life. As a result, you may be looking at the whole process from the outside, not really knowing where or how to start. If that is the case, you’ve come to the right place. This step-by-step guide will help you understand everything you need to know about purchasing life insurance policies.
Finding the right plan
The first step to finding the right life insurance plan for yourself is to determine the amount of coverage you need. This will depend on your personal income, liabilities, size of your family, etc. Many insurance companies will provide services to help you figure this step out.
Once you have a clear idea of your coverage needs, the second step is to start comparing the different life insurance policies available in your required coverage range. Luckily, we have a few shopping hacks to help you with this step:
Top Life Insurance Companies
- First and foremost, take your time while looking at all the different policies, and do not feel pressured into making a quick decision by sales agents or highly marketed websites. Even if you think you have found the perfect plan, keep looking and comparing until you have a full idea of the range of policies available out there. Only then you can make an educated decision.
- Just because a policy has a cheaper premium does not necessarily mean it offers the best value for your money. Once you factor in all the policy features, it might add up to a higher total than other comparable policies that seemed more expensive at first sight; as the premium rate does not cover your personal health conditions. If you have a specific health issue, or if you’re a smoker, for example, make sure that is included in your overall policy rate. In fact, some insurance providers offer competitive prices for more specific policies.
- Do not settle for the first quote you get. Whether you are feeling overwhelmed or confused by the various nearly identical policies out there, or if you think you have found the perfect one for you, do not accept the first rate you are offered. Prices vary quite competitively from one life insurance provider to the other. Let an agent or a broker help you find the best most valuable policy.
- Do your research about the insurance company before entering into any agreements. You can either ask the company directly about its rating, or you can look it up online using specialized websites.
Completing the application and medical examination
Once you have finally decided on the most suitable term life insurance plan and have gone ahead with the application, the first order of business is to undergo a medical examination. The insuring company will typically inspect your general health condition, your lifestyle (e.g. whether you smoke regularly or engage in high-risk activities), your family’s medical history, and other aspects relating to your health in order to determine the right premium amount for your policy. This process is called “underwriting”.
If you are, however, in poor health at the time of the application, you may be able to skip the medical exam; either by joining a group policy through your employer (most companies will offer some level of insurance to their employees), or by purchasing “guaranteed issue” life insurance, which is a life insurance policy that provides cash benefits to a beneficiary upon the insured person’s death regardless of their past or present health concerns. Beware, however, that although guaranteed issue life insurance may be easier and faster to obtain than term insurance, it usually offers smaller death benefits and is only available for applicants in certain age groups (i.e. 50 through 80).
The beginning of the policy coverage period
After the insurance underwriting procedure is done and your application is reviewed and approved, you will be required to sign the policy (as you would any other contract), and pay the first premium. Thus, your life insurance policy coverage starts; just when you were beginning to think the journey to obtaining the policy would never end!
It is worth noting that most life insurance policies have a two-year contestability period, during which the insuring company has the right to cancel the policy if it discovers that you have misrepresented any information on your application. After the two years, the insurer will not be able to cancel but will still be able to make adjustments to the policy if you have indeed presented wrong information.
Keeping an eye on your policy
You should periodically review your life insurance policy – some advise to do so every three years, or when major life changes happen such as marriage, the birth of children, or buying a new home, to compare your current financial obligations with your current policy in order to make sure you are still sufficiently covered.
If you find you are over-insured for the time being, you could shop for another cheaper policy with less coverage. Or if you are under-insured, then you could either shop for a policy with more coverage or inquire with your current insurer if you could buy add-ons to your existing life insurance policy rather than buying a new one.
The end of the policy
There are three different reasons why a life insurance policy should end:
- A term life insurance policy’s coverage will be terminated at the policy’s end date. If you have been keeping track of your policy over the years, then you will be prepared when this date arrives, either because you will have fulfilled your financial obligations or because you will have sufficient savings to cover them on your own.
- If you stop paying the premium at any point in the duration of your life insurance policy, the insuring company will cancel it. However, most insurers do have a 30-day grace period if you’ve missed a premium payment.
- If you die before the policy is terminated for either of the aforementioned reasons then the insurer will pay the full death benefit to whomever you have named as your beneficiary.
Disclaimer: Our service is not intended to be, nor should it be construed as financial advice. We help our readers make informed decisions via impartial information and guides. Where appropriate, we may introduce partner companies who can provide services relating to financial products.
