Like it or not, life insurance is something that most of us will eventually need to buy.
And it may be earlier than you think. We recently wrote an article discussing the reasons why even people in their 20s may want to seriously consider buying a life insurance policy.
If you’ve recently come to the realization that you need life insurance, you may be wondering how and where to shop to get the best deal. Don’t worry, we’ll answer all your questions in this guide.
But before we get started, let me make it clear that we will only be discussing how to shop for term life insurance. With the possible exception of people who make over $400,000 a year, you should never consider permanent life insurance policies, as they are far too expensive.
So now that we’re on the same page about that, let’s get down to business discussing how to shop for term life insurance.
1. Decide how much term life insurance you need and for how long.
How much life insurance do you need? A general rule of thumb is to take your take-home income and multiply by 10.
So if you make $50,000 a year, then you need to get at least $500,000 in life insurance coverage.
Again, this is just a general rule. Depending on your life circumstance or your number of dependents, you may need a little more a little less than this.
As far as how long your term policy should last, ask yourself, “How long will I need life insurance in order to take care of my debt obligations and my surviving dependents?”
To answer that over-arching question, here are a few follow-up questions to ask yourself?
- How soon do I expect to have my student loans and/or credit card debt paid off?
- How soon do I expect to have my home paid off?
- How much longer will my kids still be living in the home?
- Do I want to pay for my kids’ college education? If so, how long will it take for all my kids to have graduated college?
- How many years do I have left till I reach retirement age and can access my retirement accounts?
If you are really positive about how fast you can reach your goals, you may decide to pick a 10, 15 or 20-year term. However, if you think it will take you longer to be truly financially independent, then you may want to opt for a 25 or 30-year term instead.
2. Compare online and local term life insurance quotes.
There are a large number of websites that you can visit to get quick, term life insurance quotes. I recommend getting as many quotes as you can.
Below is a sampling of some of the most popular sites, ordered alphabetically:
But just because online quotes are convenient, that doesn’t mean they’ll necessarily give you the cheapest quote. I would still call up one or two insurance brokers in your local area to see what kind of a quote they can offer you.
3. Check the A.M Best rating of the insurance company (not the broker).
Once you’ve received a list of quotes, you may impulsively want to just pick the company that is offering the lowest quote. But before you start a life insurance application with any company, you need to make sure that it has a good reputation.
It doesn’t do any good to have life insurance if your life insurance company ends up going bankupt.
In this step, it’s important to understand that I’m not asking you to research the broker that you are using (whether online or in your town). At this stage of the game, that is completely irrelevant.
Using PolicyGenius as an example, their comparison-shopping service may have great online reviews. But that doesn’t necessarily mean that every insurance company they give quotes for is a great company.
Once you’ve identified the 2 or 3 top quotes that you’re being offered from a comparison shopping site, you’ll want to look up the rating of each insurance company on A.M Best.
- The highest-rated companies on A.M. best will be rated A++.
- Any company rated A, or A+ is also highly unlikely to ever experience financial failure. However, I would not recommend ever choosing a company with a rating lower than A-.
4. Understand that skipping the medical exam may cost you.
Many of the new, cutting-edge “insurtech” term life insurance companies advertise that they don’t require a medical exam. This is nice, but you need to know that these policies are often more expensive.
Why? Because the life insurance companies are taking a bigger risk with these policies. In order to compensate for this risk, they have to charge more in premiums.
- If you’re afraid that a medical exam will disqualify you from life insurance, then these policies may still be worth it to you.
- However, if you are in good health, I don’t recommend them. Instead, I would prefer for you to take the longer and less-convenient route of getting a fully underwritten policy.
But you really don’t want to deal with the time and hassle involved in undergoing a medical exam? Well, there is a middle-of-the-road option that could still save you money. Try to find a term life insurance company that doesn’t require a medical exam, but does ask detailed medical questions and asks for permission to view your medical records.
The more information that the life insurance company can access, the less risk they will be taking on to insure you and the lower your policy premiums will be.
With a plethora of comparison shopping insurance sites available today, shopping for term life insurance has never been easier.
But before you do any shopping, make sure you know exactly how much term life insurance you need. And don’t sign any paperwork, until you know that you’re dealing with a life insurance company that you can trust.