How To Compare Life Insurance Quotes

Life insurance has a public relations problem. It can come off as complicated. It can seem expensive and perhaps unnecessary. And, to put it bluntly, life insurance is pretty boring (for most people, that is).

It’s no wonder the percentage of Americans who own life insurance has dropped over the past 10 years, according to the 2020 Insurance Barometer Study by LIMRA and Life Happens, industry-funded groups.

Although it might not be the most tantalizing topic, life insurance certainly is important and necessary if you have loved ones who depend on you financially. It’s actually a lot more affordable than most people think. And to clear up any confusion, here’s what you need to know about the basics of life insurance and how to get life insurance quotes.

What Is Life Insurance?

Life insurance is a contract between you and an insurance company. That contract is called a policy. You agree to pay a premium—a single payment upfront or regular payments over time—to keep the policy active. In return, the insurance company will pay a death benefit to your beneficiary if you die while the policy is in force.

The amount of the death benefit depends on how much coverage you choose to buy. Coverage amounts can range from the very small (such as $5,000) to cover funeral expenses to the millions of dollars. You can name more than one beneficiary and designate that each one gets a certain percentage of the payout. You also can name organizations such as charities as beneficiaries.

The more coverage you buy, the higher your premium will be. Your life insurance premium also will be affected by your gender and your age and health at the time you apply for coverage. You can lock in a lower premium if you get coverage while you’re young and healthy.

If you wait until you have serious health issues, you might not be able to get a traditional life insurance policy because insurers will consider you too much of a risk to insure.

Why Do I Need Life Insurance?

The primary reason to buy life insurance is to provide a safety net for those who rely on you for financial support. If you were to die while the policy was in force, your beneficiaries would receive a tax-free payout that could be used however they want. That money could help them do the following:

•  Pay for your final expenses, such as a funeral service and burial

•  Help replace your income so your family can pay bills and daily expenses

•  Help pay off debts, such as a mortgage

•  Help pay for child care

•  Help pay for your children’s college education

Buying life insurance could also allow you to leave an inheritance to your children without having to worry about how you spend your own money in retirement. Or it can be a way to leave a legacy because you can donate your life insurance to charity, organization or cause that is important to you.

Life insurance also can be used as a retirement and tax-planning tool. A permanent life insurance policy typically includes a feature that allows it to build cash value. The cash value grows tax-deferred and can be accessed as a source of extra income in retirement.

However, this strategy typically makes sense only for high-income individuals who have maxed out other retirement accounts. It’s important to consult with a financial planner to find out whether this strategy makes sense for you.

How Much Life Insurance Do I Need?

When it comes to figuring out how much life insurance you need, you shouldn’t just pick a number out of the air. If you do, you could end up being underinsured and could leave your family without a sufficient financial safety net.

Most life insurance companies—including AIG, John Hancock, Northwestern Mutual and Pacific Life—have calculators on their websites to help you figure out how much coverage you need. You also can use the life insurance needs calculator from Life Happens, a consumer education resource provided by the life insurance industry.

The calculators typically look at two key factors that you should consider when determining how much life insurance you need: the financial obligations you’d want to cover if you died and the financial resources you already have. The difference between the two is the gap you need to fill with life insurance.

With that number in hand, and knowing what type of life insurance you want, you can get life insurance quotes.

For financial obligations you would want to cover, consider the following:

•  Funeral and burial expenses: The median cost of a funeral with visitation and burial is $7,640, according to the National Funeral Directors Association.

•  Income replacement: Consider how much of your annual salary would need to be replaced and for how many years (for example, until all of your kids have graduated college).

•  Debts you owe: How much would it cost to continue making mortgage payments or pay off the mortgage entirely? Also add in any other large debts that would need to be paid.

•  Child care: Your spouse or partner might need to hire someone to care for or transport young children if you’re not around to help.

•  College tuition: Consider how much you want to contribute toward your children’s college education and multiply that amount by the number of kids you have.

Consider the following assets or resources you already have to help cover your obligations:

•  Emergency savings: Cash reserves can help cover bills or short-term expenses.

•  College savings: The more you have saved in a 529 college savings account or other account, the less you’ll need in life insurance to cover the cost of your children’s college education.

•  Retirement savings: Funds in a 401(k), IRA or other retirement account could help loved ones cover expenses or be used as a source of income in retirement.

•  Existing life insurance: Factor in any existing life insurance policies you might have as resources to cover your obligations. However, be aware that you could lose life insurance coverage you have through work if you leave your job.

•  Prepaid funeral costs: If you’ve prepaid for a funeral, that’s one less expense you’ll need to cover with life insurance.

You should have at least enough life insurance to cover your obligations that can’t be covered with the financial resources you already have. You might want more if you want to leave a legacy in addition to providing financial support.

Things to Know Before Getting Life Insurance Quotes

Don’t let misconceptions about life insurance hold you back from getting coverage or lead you to make costly mistakes when applying for a policy. Here are a few key points:

Life insurance is more affordable than you think. The average cost of a term life insurance policy with a $250,000 death benefit for a healthy 30-year-old woman is $160 a year—about $13 a month, according to the 2020 Insurance Barometer Study.

The younger you are when you buy life insurance, the more affordable it will be. Your age and your health affect the rate you pay. The longer you wait to get coverage, the older you will be and the more health issues you might develop that will make getting an affordable rate a challenge.

The application process can be fast and easy. If you’re in good health, you might be able to apply online and get approved for coverage in just a few minutes without taking a medical exam.

You should compare life insurance quotes from several insurers because prices can vary widely. If you work with an independent insurance broker, the broker will do the comparison shopping for you.

Types of Life Insurance

There are two primary types of life insurance policies: term life insurance and permanent life insurance. And there are a variety of options for permanent life insurance. So it’s important to understand what each type offers before making a choice.

Term Life Insurance

Term life insurance offers coverage for a certain number of years—typically 5, 10, 15, 20, 25 and 30 years. The insurer will pay a death benefit only if you were to die within the term of the policy. The longer the term you choose, the higher your life insurance quotes will be. However, term life insurance quotes are much lower than permanent life insurance and can be an affordable way to have coverage in force during the years when your family depends on you most for financial support.

Permanent Life Insurance

Permanent life insurance offers lifelong coverage, as long as premiums are paid. It also offers the ability to build cash value that grows tax-deferred. These features make permanent life insurance quotes much higher than term life. Permanent life also can be more complicated than term life because there are a variety of policy types.

Whole life insurance provides lifelong coverage and a cash value feature. It tends to be the most expensive type of life insurance because it offers a guaranteed rate of return on the cash value, the opportunity to earn dividends from the insurance company, and premiums and the death benefit remain the same over time.

Universal life insurance offers lifelong coverage but doesn’t necessarily have the same guarantees as whole life insurance. With some types of universal life policies, the premium payments and death benefit can be adjusted. And some universal life insurance policies have varying rates of return on the cash value.

•  Guaranteed universal life might have little cash value, but the premiums and death benefit remain constant.

•  Indexed universal life may offer the ability to adjust premiums and the death benefit. The cash value is tied to a market index, such as the S&P; 500, so the rate of return can vary. Indexed universal life policies tend to be complicated and can have high fees.

•  Variable universal life offers adjustable premiums and lets you choose how to invest the cash value portion among investment options offered by the insurer. The rate of return will depend on the investments you choose.

Guaranteed issue is another type of permanent life insurance. It’s geared toward a certain segment of the population: older adults who want a policy that will help pay for final expenses. There is no medical exam, and you can’t be turned down for coverage as long as you meet the age requirements. Coverage typically is limited to $25,000 or less. And the price is high compared with other policies for the coverage you get.

Factors Used in Life Insurance Quotes

Insurance companies use a variety of factors when determining whether to offer you coverage and what your life insurance quote will be. The type of policy and the amount of coverage you buy will affect the premium. More importantly, though, insurers need information about you to determine how much of a risk you are to insure.

The more risk you pose, the higher your rate will be.

The key factors insurers consider are your gender, age and health. Women tend to pay less because they live longer, on average, than men. Young and healthy adults will get the lowest life insurance quotes and be able to lock in a good rate for the duration of their policy.

Insurers will generally ask you many questions to give you an initial life insurance quote. To get a final quote, you’ll have to go through a process called underwriting. This typically involves filling out a lengthy application with questions about your health, smoking habits, family medical history, occupation, hobbies and recent or planned travel overseas. You’ll be asked to let the insurance company use third-party sources to gather information about your medical history, prescription history, credit history and driving record.

You also might have to take a medical exam. But more and more insurers are able to rely on data modeling to assess risk and allow young, healthy applicants to Don’t let misconceptions about life insurance hold you back from getting coverage or lead you to make cos.

How to Find the Best Life Insurance Policy for You

The best life insurance policy for you will depend on your financial goals and reasons for buying life insurance. So you’ll need to assess your financial situation to figure out what you already have in place to support loved ones who depend on you financially and what needs you should cover with life insurance.

If you want a policy that will provide financial protection for a certain period of time (such as while your children are young), a term life policy will provide the coverage you need at an affordable rate. If you want coverage that lasts a lifetime and provides cash value that you can access while you’re living, a whole life or universal life policy might be a better fit.

Consider working with a financial planner who can help review your situation and figure out what type of life insurance will fit in your financial plan. You can find a fee-only planner through the National Association of Personal Financial Advisors. Or your workplace might offer you access to a financial professional as part of your benefits.

See Forbes Advisor’s ratings of the best life insurance companies.

How to Apply for Life Insurance

To buy a life insurance policy, you can contact a life insurance company, work with an independent insurance broker who will get life insurance quotes from several insurers for you, or use an insurance quote comparison site.

From there, the application process will vary depending on the type of underwriting that is used.

•  Full underwriting: This traditional underwriting process requires you to fill out a lengthy questionnaire, take a medical exam and give the insurer permission to gather information about you from several third-party sources. The process can take up to 60 days, but it likely will result in the lowest life insurance quote if you’re healthy because the insurer will have enough information to price the policy accurately.

•  Accelerated underwriting: This process is similar to traditional underwriting but doesn’t necessarily require a medical exam. And it’s faster because it uses data modeling to assess the risk of applicants. Often, you can apply online, the insurer will instantly gather data from third-party sources, and you can get approved for coverage in a matter of minutes. The quotes are comparable to those on fully underwritten policies, but coverage amounts tend to be limited to $1 million.

•  Simplified issue: This process for buying simplified issue life insurance is fast and easy. Applicants must answer only a few questions about their health and lifestyle, then insurers will use third-party sources to gather additional information about applicants. No medical exam is required, so insurers often can make immediate decisions about whether to accept or reject applicants. But note that rates are higher for simplified issue policies because insurers have less information about applicants.

Top Tips for the Life Insurance Medical Exam

A fully underwritten life insurance policy typically requires that you take a paramedical exam to verify the information you provide on your application. Insurers use companies such as Exam One and APPS-Portamedic to send a nurse or paramedical professional to your home or workplace to check your height, weight, pulse and blood pressure and to take blood and urine samples (which can detect nicotine and drug use).

Some insurers require an electrocardiogram, EKG, test [A5] to monitor heart activity for older applicants or applicants applying for more than $1 million in coverage. Some also might require an X-ray or treadmill stress test. If you’re 70 or older, you might have to take an additional test of cognitive ability.

It’s important to take the medical exam seriously because it will impact the life insurance quote you’re offered. To prepare, take the following steps:

•  24 hours before the exam: Limit salt and high-cholesterol foods such as red meat. Avoid over-the-counter medicine such as antihistamines and nasal decongestants.

•  12 hours before the exam: Avoid alcoholic beverages and strenuous exercise, which can raise blood-pressure levels. You also might have to avoid eating and drinking anything other than water during the 12 hours before your exam.

•  One hour before the exam: Avoid caffeine and nicotine. Drink a glass of water to make providing a urine sample easier.

•  At the exam: Have a photo ID and application paperwork. Wear short sleeves or sleeves that can be rolled up so your blood can be drawn and blood pressure can be taken.

Life Insurance Terminology

Beneficiary: The person or organization named to receive a life insurance policy payout at the time of the insured’s death.

Cash value: Money that accumulates in a permanent life insurance policy and can be accessed while the insured is alive through loans, withdrawal or a policy surrender.

Death benefit: The amount paid to the beneficiary at the time of the insured’s death.

Face amount: The amount coverage that is purchased and will be paid out as a death benefit.

Insured: The person whose life is covered by a life insurance policy.

Policy: The legal document that spells out the terms of a life insurance contract.

Policyholder: Also known as policy owner, the person who owns a life insurance policy. This person is responsible for paying premiums. Typically, the policyholder also is the insured but doesn’t have to be.

Premium: A lump-sum payment or periodic payments made to keep a life insurance policy in force.

Rider: Additional coverage that can be added to an insurance policy (typically at an additional cost).

Underwriting: The process life insurance companies use to gather information about applicants to determine whether to insure them and what rate to charge.

Frequently Asked Questions (FAQs)