Questions to Ask Before Buying Life Insurance

March 23, 2020
Jonathan Fritz
B.A. Risk Management
Life Insurance Agent

Buying life insurance requires planning and research. After all, your policy will stay with you for years and can affect your family's financial future. Your life insurance policy needs to fit into your financial situation both now and in the future. You'll need to consider your own situation as well as the details of the policies you're looking into. Get started by asking the questions in this guide. Once you determine the answers, you'll have a much better idea of the right policy for you and your family.

Do I Need Term or Whole Life Insurance?

Life insurance policies typically fall into one of two main categories: term and whole life. The type you need depends on your situation and your budget. There are a few different options within each category, but the policies will be either:

  • Term Life — A term life insurance policy covers you for a set number of years or until you reach a certain age. Term policies are generally a more affordable option, especially if you want full coverage. You'll have the opportunity to renew your policy after the term ends, but your premiums might go up.
  • Whole LifeWhole life policies are sometimes called permanent policies. As the name implies, these policies cover you for life. Premiums for whole life policies are generally much higher but will be fixed throughout your life. Whole life policies also have a cash value component, allowing you to borrow money from your policy in times of financial need.

A term life policy is generally a good choice if you're in good health and relatively young. You'll be able to get a large benefit amount for a low monthly premium. Whole life policies are more expensive but will cover you throughout your life. No matter what type of policy you buy, you should make sure the premiums fit your budget and the benefit amount is enough to protect your family.

How Much Life Insurance Coverage Should I Buy?

You should look at several factors when deciding how much life insurance coverage you need.

The general rule is that most people need a life insurance policy of about 10x their annual salary. However, this might not be the right amount for all situations. Some families might need policies with a much higher benefit amount, while others might find that's much more than they need.

You'll need to consider your current expenses and your anticipated future expenses. For example, if you're starting a family, you'll need to take into account the money you'll need as your children and family grow. In this situation, it might make sense to include future education or mortgage costs into your life insurance planning. Conversely, if you're nearing retirement age and you and your spouse are planning to downsize, you might not need as much coverage.

It's helpful to add up your current expenses and then look at your savings, debts, and plans for any major life changes. You'll also need to account for the possibility of expenses related to your death, such as medical bills and funeral costs.

Do I Want to Take a Medical Exam to Get My Life Insurance Policy?

Many life insurance companies require you take a medical exam before offering your coverage. Life insurance medical exams typically involve blood work and recording of your vital signs. The results of the exam will determine the price for your coverage and, in rare cases, can result in the company rejecting your insurance application.

However, it's possible to get coverage without taking a medical exam. You can find affordable policies with completely online applications. You'll provide your basic information and health history, but you won't need to take an exam. This form of life insurance is often called no exam life insurance.

What Life Insurance Company is Right for Me?

You need your life insurance policy to be from a financially secure company that will be around longer than your policy itself. You don't want to purchase a policy from a company that folds before the benefit is ever paid out. A life insurance policy is an investment, and you need to know you'll be able to spend years with the company you choose.

Once you know the strength of your policy, you can look into the details. Before you commit to a policy, you should know:

  • What riders are available — Riders are optional additions to your insurance policy. They can help you with financial planning or provide peace of mind in the case of a major life change or emergency.
  • How benefits are paid out — Your policy should lay out the process for your beneficiary to get the payout. You should know how fast the company makes payouts and the methods of payments they offer.
  • The circumstances that could cause the death claim to be denied — Most policies have regulations that state your death payout could be denied if you die under certain circumstances. These normally involve illegal activity, but all policies have their own rules.
  • What the waiting period is — Policies sometimes have a waiting period before your policy fully takes effect. This is normally done to prevent fraud. You might have to make a certain number of payments or wait a set amount of time. Other policies might provide full coverage right away, but death claims will be subject to a longer investigation early in the policy. This is known as a contestability period.
  • What flexibility you have to change your policy — Despite all your planning, your circumstance may change. You might need to increase or decrease your coverage amount, or even cancel it altogether. It's important to know what rules your policy has in place for any changes.

What's Next?

Over 10,000 families have used our free rates tool to see quotes from trusted life insurance companies. Many of the companies we work with offer coverage without requiring of a medical exam. If you need more help, agents can walk you through the process and help you find the best policy for your family.