Buying life insurance?

Life insurance is available in two basic forms: term life insurance and permanent life insurance (like whole life insurance and universal life).

Term life insurance covers you for a set period of time, called a "term" – usually 10, 20, or 30 years. This is the most popular type of protection because term life insurance rates tend to be very affordable. However, once the policy term expires, you are no longer covered. If you still want protection, you have to apply for a new policy at a higher rate - because life insurance companies typically charge higher rates to older applicants. Because of term life's lower cost, it is the most popular type of life insurance.

Permanent insurance covers you for your entire life, so no matter how long you live, your family will get a payout after you're gone. These policies also have a cash value feature: A portion of each premium payment is set aside and grows tax-deferred over time.^1,2 You can borrow against policy cash, use it to pay premiums, even cash it out to supplement your retirement savings.³ A permanent insurance policy has cash value; a term policy does not. However, because of these added benefits, permanent life insurance is typically significantly more expensive than term.

Here are the key terms that will help you evaluate different kinds of policies:

• Premium: the payment you make to maintain your policy; can be paid monthly, quarterly or yearly
• Term: the amount of time your policy is in effect and pays a benefit
• Death benefit: the lump sum payment your beneficiaries receive if you pass away
• Beneficiary: the person(s) or entity (such as a charity) that will receive the death benefit from your policy
• Cash value: money that builds in a permanent policy that can be accessed while you are alive
• Rider: any optional feature that adds additional protection to your policy⁴

What's the best life insurance policy for your needs? You may want to start working with an agent or broker to determine the answer, which will depend on a number of factors, including your financial goals and budget. If you need protection for a limited amount of time, such as while your children are still in the household, term life insurance may be a good choice. On the other hand, if you want permanent coverage that lasts your entire life, whole life or universal life insurance are likely to be better options. 

• Whole life provides lifelong protection and builds tax-deferred cash value that you can withdraw or take personal loans against when needed. The cash value gets a guaranteed rate of return, and the premium is "level" - guaranteed never to go up or down.⁵
• Universal life also provides permanent protection with cash value that grows tax-deferred, but the premium is variable, not level: you can adjust payments within a specific range.^{6, 7} That can help people with varying incomes enjoy the benefits of a permanent life insurance policy.

You know you need protection, but how much life insurance coverage should you get? That depends on where you are in life and how many people rely on your income. In general, the younger you are, the more you should get to provide "income replacement" for the years of lost income your family will face if you pass away. Consider all the expenses they will have to cover, including your mortgage, college tuition costs, vehicle expenses, medical bills, etc.  

This calculator can help you estimate how much insurance protection you need and what a term life insurance policy would cost. The life insurance quote may well be lower than you expected. However, the actual premiums you end up paying will depend on several factors, including:

• The type and amount of the policy
• Your age
• Your gender
• Your smoking status
• Your health/medical history
• Your occupation

Your life insurance policy is only as good as the life insurance company that stands behind it. Here are some things you can do when choosing a provider (or narrowing down the list):

• Check customer service ratings. J.D. Power life insurance ratings can give you insights into how happy customers are with a company's services.
• Check their financial ratings. Third-party agencies such as A.M. Best, S&P, and Moody's rate life insurance providers based on things like available cash flow, customer complaints, and acceptable risk. A higher rating indicates a more solid fiscal foundation and long-term financial health.⁸ 
• Compare options and rates from several companies. If you're working with an agent, they can help you get life insurance quotes; you can also get them online.

Once you've considered the different types of life insurance, decided how much you need, and narrowed down the list of companies you want to work with, it's time to start the application process. First, your insurance agent will go over your personal financial situation with you and review policy options.

Next, you'll apply. The insurance company may ask for several details, including:

• Medical records and history
• Personal finances and annual income
• Primary care physician and other doctors
• Your occupation
• Lifestyle choices, such as tobacco use and dangerous hobbies

If the policy you're applying for requires a medical exam (which is likely if you're applying for a significant benefit amount), the life insurance company will arrange for the exam and cover the costs. In most cases, a professional will contact you to schedule your appointment, and the examiner will come to your home or office. The exam usually only takes 15 to 45 minutes, depending on what's required. It may include any or all of the following:

• Names and dosages of any medications you have taken for a current or past health condition
• Names and contact information for all physicians you've seen during the past five years
• A list of any medical conditions you have, along with the date you were diagnosed, the physician's contact information, the type(s) of treatment received, and the treatment outcome
• Your height, weight, and vitals
• A urine sample
• A blood pressure reading
• Blood drawn for several tests, including nicotine and drug use

You may be asked for other tests as well. You should be able to get the results of your tests from the paramedical company - just ask your examiner what their policy is and how to access the results. 

What if you're not in good health or have known health issues? There are "simplified acceptance" life insurance policies that do not require a medical exam and "guaranteed acceptance" policies that don't even ask medical questions. However, the premium rate per dollar of coverage is much higher, and protection amounts are typically limited. These policies aren't usually meant to provide significant income replacement and are more often used to cover final expenses.

The underwriting process can take as little as 24 hours but more often lasts 4 to 6 weeks. During that time, an underwriter will look over the details of your application, your health information, and your lifestyle to determine your insurance risk class. The larger the policy, the more detailed the underwriting process.

Once the underwriting process is completed, you'll find out if you were approved and at what rate. If you've been working with an experienced agent and no health surprises are uncovered, you're unlikely to have higher premiums than you expected. However, there may be instances where a person is approved for coverage but not for the full amount due to risk factors.  

Your beneficiary is the person named on the policy documents to receive the payout if you pass away. You can name more than one beneficiary and assign each one a specific percentage of the payout. Typically, people name their spouse or children as beneficiaries, but those aren't your only options. You can also name a charity, a trust, your estate, or another person close to you as a beneficiary.  

People make a few common mistakes with life insurance, such as buying the wrong kind of insurance for their circumstances. For example, someone in their 20s or 30s who purchases term life to protect a young family may find that their policy expires while children still depend on their income. Another common mistake is not buying enough coverage, so the benefit paid to beneficiaries may be too small to cover their needs. Finally, waiting too long to purchase a life insurance policy can also be a costly mistake since premiums are generally more expensive for older buyers.

If you're looking to purchase life insurance, consider talking things over with someone who can help you decide whether term life, whole life, or another type of coverage is right for you. A broker or financial professional can help you compare alternative options and determine which type of policy best suits your personal finance goals. If you don't have someone to discuss insurance with, Guardian can help you find a nearby financial professional who will listen to your needs and help guide you to the right solution.

Can you get life insurance on just anyone?

While you can purchase insurance on someone else, there are some legal stipulations. For example, you must have the person's permission to do so, and you must show insurable interest, meaning that you will financially suffer if they were to die. Parents and grandparents can also take out policies on their minor children or grandchildren. 

How can I buy life insurance for myself?

It's easy to get a term life quote and buy a policy online. However, if you know you need life insurance but are unsure what life insurance products best suit your needs, you should get guidance from an insurance professional.

What is the average life insurance cost per month?

According to a recent survey of rates, the median cost for a 20-year term policy was 11.1¢ per $1,000 of coverage⁹. However, that number is an average life insurance cost for all applicants between the ages of 30 and 50. The actual price you'll pay will vary based on various factors, including the policy type, coverage amount, length of term, gender, health, and more.

Who's eligible to buy life insurance?

Eligibility for a life insurance policy is based on several factors: your age, your overall health, your lifestyle habits, and other factors. Most people are eligible to buy life insurance, but the type of policy, level of coverage, and cost all depend on your unique situation. If you have a medical impairment, your regular premiums may be higher, or certain benefits may not be available. If you expect to have difficulty getting approved for a life insurance policy, talk to a financial professional who can explain what options are available to you and help you make the best coverage choice for your circumstances.