Many people are reluctant to dive into life insurance because the whole process is based on pondering your exit from this planet. We get it; not so fun! But once you get started, you are likely to recognize what an important gift life insurance can be to your family members.
Life insurance can help ensure that your loved ones’ needs are met and bills are paid if you’re not there to provide for them. Seen in that light, and with clear and simple advice, the whole shopping and sign-up process can be a positive experience.
Let’s go!
What Is Life Insurance?
Before you start researching your options, it helps to understand what life insurance is and how it works.
Life insurance is a kind of a contract between the policyholder and their insurance company. The policy ensures that the beneficiaries named receive a lump sum of money when the policyholder dies, called a death benefit. This financial cushion can provide peace of mind and help loved ones with expenses when you are no longer here.
To receive coverage, the policyholder pays premiums while they’re alive. They must also disclose key details, like their health status and lifestyle. There are two main varieties of life insurance: term insurance, which provides coverage for a specific period of time, and permanent life insurance, which provides coverage for however long you live.
💡 Quick Tip: With life insurance, one size does not fit all. Policies can and should be tailored to fit your specific needs.
Life Insurance Benefits
There are several reasons why life insurance is important, but tops on your list may be that it can provide your loved ones with a financial safety net when you’re no longer here. They can use the death benefit for a variety of purposes and to pay for any number of expenses.
There are other potential benefits to consider, too:
• The money your beneficiaries receive from a life insurance policy generally isn’t taxed by the federal government. You will, however, need to report any interest you receive from the policy.
• You can add riders to better tailor a policy to meet your individual needs.
• If you purchase a whole life policy, it has cash value that grows over time tax-deferred. You can cash it out at any time to help pay for a major expense or to borrow against it.
How to Buy Life Insurance Coverage in 9 Steps
Yes, buying life insurance requires time and focus, but it’s a valuable investment. Each of us has a unique situation and needs a policy tailored to protect our loved ones in a worst-case scenario. It may not be a pleasant prospect, but the reassurance you’ll feel once you buy life insurance is a very good thing.
In broad strokes, the process of getting life insurance looks like this: research (getting comfortable with the whole concept and learning your options), analysis (thinking about which product is best for you and how much coverage you will need), shopping around, getting vetted by the provider you’ve selected, and finalizing your purchase. We’ll break it down for you further.
1. Decide If You Need Life Insurance
The first step is to figure out whether you even need life insurance. Not everyone does! The crux of life insurance is that it provides for dependents in the event that you aren’t there to do so. The key scenario involves covering the expenses of daily life for those who rely on you if you are not around to earn money. (Sorry to reduce it to dollars and cents; we know you do a lot more than just bring home a paycheck!) Think about what your income covers: rent or mortgage, utilities, food, medical care, car payments, educational costs, vacations, summer camp, and more.
It’s worth noting that the beneficiaries of your policy (the people who will receive the lump sum of money when you die) may include a partner, children, other family members, a charitable cause, or a business that you own.
The majority of Americans do take out life insurance. In 2023, that figure was 52%.However, if you are single and without any dependents, there may not be a reason to purchase a policy. Or if you have a partner who has a sufficient bundle of their own money, hey: You may not need life insurance either. Perhaps you have a generous life insurance policy through your job – you may not need to buy more right now.
2. Buy Life Insurance at the Right Time
You should get life insurance if you are a source of financial support for a partner, child, and/or an aging parent, regardless of your age. If you know you want to get married and/or start a family, it’s likely a smart move to get life insurance before you tie the knot and expand your clan. The cost of a life insurance policy may be higher after these events than before. Also, you will probably get the best rates when younger. As people age and health issues crop up, insurance rates become steeper.
It’s worth noting that, when applying for life insurance, the underwriting process often uses half birthdays to determine your age. What that means is if you have reached your half-birthday, your age will be rounded up to the next year, and you will therefore be charged more. Many insurers will allow you to avoid this scenario by backdating your application. If this situation applies to you, check with your insurance provider about an accommodation.
A couple of other scenarios are triggers for life insurance shopping. If you have private student debt and your parents were cosigners, they would be left liable if you died. Similarly, if you are married, your spouse could be responsible for those payments as well. Lastly, if you have a high-risk job (Are you a pilot? Firefighter? You’re exactly the ones we mean), you definitely want to take out life insurance to make sure your dependents are protected.
3. Research What Type of Life Insurance Is Best for You
If you feel that life insurance is a necessity, the next step will probably be figuring out what type of policy is best for you. (It’s also a good idea to get up to speed on some key life insurance terms while you’re at it.) Let’s look at the two best-known types.
Term life insurance does what the name implies: It covers your beneficiaries for a particular period of time (typically, 10, 15, 20, 25, or 30 years). This provides financial support to get your dependents through a particular milestone, like paying off a mortgage or floating those college costs. Because it is in place for a limited period of time, it is usually the more affordable option than whole life insurance, which we’ll get to in a moment.
There are variations in how term insurance policies pay out.
• In a level term life insurance policy, the death benefit — the amount paid to the beneficiaries at the time of the insured’s passing — stays the same, or “level,” throughout the length of the policy term.
• In a decreasing term life insurance policy, the death benefit slowly but regularly drops, often with each passing year of the policy’s term. This could be a good choice if you are able to target pay-off dates for expenses like a mortgage or tuition.
• Another word you may hear when reviewing term life insurance policies is “renewable,” meaning they can be continued for an additional term, or terms, up until a certain age, even if the insured person has undergone health changes for the worse. This can be helpful, since certain health conditions and age are used to determine life insurance eligibility and cost. However, the extension of the term is usually for a brief period and the cost of the premium typically becomes very expensive.
So, let’s summarize how term life insurance works: When the coverage period is over, that’s it! Done and done. If the insurance wasn’t needed, the insured doesn’t get their money back. (After all, the paid service of just-in-case protection was still rendered; the “just-in-case” scenario simply never happened.)
Permanent life insurance, on the other hand, delivers financial help regardless of when you pass away as long as you pay premiums. At whatever age that might be, your beneficiaries will receive the death benefit. It also can build cash value that can be tapped. For these reasons, it tends to be the (much) pricier option.
It may be a good choice in certain situations. Consider a parent of a special needs child who will probably not be able to live independently. In that case, a term policy might not give the span of coverage being sought.
Here’s how these products are categorized:
• Traditional (aka ordinary) whole life insurance offers a savings account — also known as the policy’s “cash value” — along with the death benefit. As the insured party pays premiums, the insurance company issues dividends, increasing the cash savings. These are tax-deferred and tappable during the insured’s lifetime.
• Universal or adjustable life insurance works similarly but, by passing a medical examination, the insured person may be able to increase the death benefit. Also, by accumulating money in the attached savings account, they may also be able to lower or even skip premium payments. Keep in mind, though, that as of this writing, interest rates are quite low so this latter possibility may not work out for you.
• Variable life insurance allows the insured party more control over the attached savings vehicle, which you can choose to invest in stocks, bonds, and other assets. Note: This brings the same risk of loss as any other investment.
• Variable-universal life insurance, as the name suggests, combines some features: The policy holder has control over investing their savings, plus can adjust the premiums and death benefit.
Recap time: With permanent life insurance, even if you live to be 121, the insured will at least have access to the cash value of the policy, no matter what. That can feel better for some people than what they might describe as “throwing good money away.”
Phew! It’s a lot, we know. But that covers the bases. Once you know which type of insurance will probably work best for you, you can explore the options.
4. Calculate How Much Life Insurance You Need
The next big step in buying life insurance is to think about how much you need and for how long. According to the Insurance Information Institute, answering these two questions may help you come up with a good number:
• What financial resources will be available to your beneficiaries when you’re gone? Think about such financial resources as Social Security and other survivor benefits (like a pension), any group life insurance, and other assets (real estate, investments). When would they become available and for how long would the funds be paid out?
• What will be the financial needs of your beneficiaries after your death? This isn’t a happy topic, but if you weren’t here, what would your survivors need for daily expenses, your debts, and your end-of-life costs (burial or otherwise)? Don’t forget that inflation will be at work, so the amount needed will tick up over time.
Have you got a ballpark figure for each of these? Great. Subtract the financial resources from the needs. The resulting figure is how large a life insurance policy you should purchase.
Even if you’re a math-phobe, it’s worth doing this exercise. There’s a lot riding on it: the security of your loved ones in a worst-case scenario. It also may help you realize how expenses would add up if you weren’t around.
Not feeling like you want to break out the calculator? We hear you. Some people estimate the amount needed by a shortcut formula like, say, 10 or 15 times their annual income. Unfortunately, this can wind up leaving you underinsured. There are plenty of online calculators that offer to help people determine how much life insurance they might need. Or seek out a trained expert. Depending on your needs, a professional financial planner may be a terrific resource for making a customized life insurance plan with your individual circumstances in mind.
5. Research Your Options
Once you are armed with this insight, you’re ready for some research on different options so you can narrow down the policies available to you. It’s your call whether you use online insurance resources or work with a professional — or a combo of both. You may find that certain providers offer multiple products that could work for you. Or you may look at an array of brands.
Whether you are assessing policies from one company or many, follow this advice to find a great fit. And remember, there’s no right or wrong answer — just what’s right for you.
• Make sure you are comparing apples to apples. With all the permutations out there, double-check that you aren’t getting mixed up by the different categories (term vs. universal life).
• For term life insurance, is the length of the term that you want available?
• If you are looking for term insurance, could you convert it to a different kind of policy down the road, if desired? What would be involved in making the switch?
• Understand the policy’s premiums: Are they fixed (you may see the phrase “guaranteed level”), flexible, or will they rise over time?
• Understand what the life insurance policy covers.
• Are the policy’s fees built into the premium?
• Will you need a medical exam to qualify for the policy? You’ll probably have options here: The approval process is said to be fully underwritten (meaning you must pass a medical exam to show you are a good risk), simplified issue (in which a medical questionnaire but not exam is required), or guaranteed issue (translation: a lower-value policy with no medical qualification required ). If you want a policy quickly or have an underlying medical condition, that may influence your decision.
Do you need insurance riders?
As you consider your options, you may want to explore life insurance riders. These are add-ons to your basic policy that cover specific circumstances. Yes, they usually add to your premium. Let’s explore some possibilities that help if life throws you a curveball:
• Accelerated Death Benefit Insurance Rider (ADB in insurance shorthand): If you were to become terminally ill, you could draw upon your policy’s death benefit to help cover the costs of your care.
• Critical illness insurance riders allow you to access funds from the death benefit to pay for your treatment if you have certain conditions that can shorten your life and rack up big medical bills. Some examples: cancer, stroke, heart attack, kidney failure, and ALS.
• A spousal income rider provides a death benefit if your spouse dies, even if they aren’t earning income. It’s a way of replacing all the ways they helped contribute to your household staying up and running. Typically, this rider involves a smaller amount of coverage than if your partner were to take up a separate life insurance policy.
There are several other riders available which vary from company to company and policy to policy. If you have circumstances that might benefit from a rider, do the math to make sure the cost of the rider works out in your favor.
Consulting with a life insurance broker may help you determine which, if any, riders make sense for you.
6. Shop Around for the Best Life Insurance Policy
Now you’re at a fork in the road and have to pinpoint the right policy for your needs. Some people like to do this online: It’s a streamlined process, and you don’t need to deal with a salesperson chatting you up. There are loads of great tools that make this process surprisingly easy and informative.
Others may prefer the experience of talking with an agent, either one who represents a single provider or one who can share details on policies from a variety of companies. If you do work with a broker or agent, look for someone licensed by your state’s insurance department.
You will likely find that, no matter which avenue you choose, the prices of life insurance policies will vary considerably. Hugely, even. Each quote you get is personalized to your particulars, and each provider uses its own algorithms to determine pricing. Don’t let that throw you: It’s a good idea to forge ahead and find the right policy at the right price for you.
There is one detail on which you will probably want to dig deep: the financial rating of the company responsible for your insurance. Let’s agree that paying premiums to a business that folds is a life experience most of us would like to avoid! The Insurance Information Institute advises people to “select a company that is likely to be financially sound for many years, by using ratings from independent rating agencies.”
Why Getting Multiple Quotes Is a Good Idea
It can involve more time, and it may make your head spin (just a little, we promise), but getting a robust set of life insurance quotes will help you find the best deal.
Not all companies operate in every state. And it’s likely that insurance providers have different ways of weighting the variables that go into setting their prices. For instance, one might charge a smoker more than another company; another might set your expected mortality at age 80 while another might use age 100.
By getting a good array of quotes (even if you are already leaning towards a specific company), you’ll do your due diligence and better understand the policy you select.
7. Prep for Your Life Insurance Phone Interview
Let’s say you’ve found a policy that looks like a winner and you’ve applied for it. Congrats! Now, as you near the end of your life insurance quest, you’ll have a phone call with the policy provider. This call isn’t akin to a job interview with “trick questions” or stressful inquiries. It’s all about information sharing, and it’s a required step in the process before your file goes to underwriting. What the life insurance company typically does on these brief calls is double-check that all the information they have is spot-on. This protects both parties by knowing the policy aligns with your needs.
In addition, they’ll probably ask more questions about your health history and your hobbies. (They don’t care if you play alto sax, but if you hang-glide most weekends, that may well raise your rate). You may also be asked for more information about the beneficiaries you’ve selected so your insurance provider knows they have all the details correct.
The best way to prepare: Have all the information you need at your fingertips – things like your drivers license and Social Security numbers, your income and financial assets, citizenship documentation, and any other life insurance policies you may have. Also keep medical information handy. In addition to the names, addresses, and phone numbers of your doctors, have dates of medical milestones in front of you. For example, if you had major surgery, a diagnosis with a serious condition, or gave up smoking, knowing those dates will be helpful.
One watch-out: Expect to be asked about your smoking and drinking habits, as well as your recreational drug use. You’ll want to be honest so your coverage reflects the reality of your life.
8. Schedule an Insurance Medical Exam
You’re in the home stretch of securing your life insurance… the finish line is in sight! The next step is getting your medical review completed. This is typically required for most applicants, though not all. Some policies are offered without this (they may only need answers to some medical questions), and if you are buying a no-exam policy, obviously… no exam!
For most people, though, there’s a brief check-up — think 30 minutes or so. Usually, the provider covers the cost, and it can be scheduled at your convenience, at your home, office, or a healthcare facility. Expect it to likely involve an exam by a technician who will check your height, weight, and blood pressure, as well as collect blood and urine samples which will be sent off for analysis.
9. Wait for Your Life Insurance Approval
Tom Petty sang, “The waiting is the hardest part,” and that is often true!
For some policies, approval comes very quickly. Policies that don’t require a medical exam could be in motion within a day or two.
But for most, it takes a few weeks to move through underwriting. During that time period, you can probably secure temporary coverage if that would set your mind at ease. Check in with your agent or life insurance provider about this possibility.
💡 Quick Tip: The group life insurance offered by employers is a nice perk, but it may not be enough to cover your financial obligations. A supplemental life insurance policy can bridge the gap.
Reasons to Buy Life Insurance
Life insurance can be an important tool to help you create a solid financial foundation. Let’s look at some common reasons why you may want it.
• Replace your income for loved ones. Life insurance helps replace your income if you die, which can be especially useful for any beneficiaries who depend on you financially.
• Pay for end-of-life expenses. The death benefit your beneficiaries receive can be used to pay for your funeral and burial costs, debts, medical expenses, or any costs associated with your estate.
• Pay federal and state estate taxes. Life insurance can be used to pay federal and state “death” taxes, removing the financial burden from your loved ones.
• Create an inheritance for heirs. Life insurance can be a good way to pass money to your heirs. The death benefit will go to your beneficiaries and is usually tax-free.
• Make a contribution to the charity of your choice. Want to continue helping a beloved cause or organization after you pass away? Consider naming a charity the beneficiary of your life insurance.
Alternatives to Life Insurance
Life insurance can be an effective way to provide for your loved ones after you die, as the money is typically paid out within 30 days of a policyholder’s death. But it’s not the only option you have. Here are some other approaches to consider:
• Accidental death & dismemberment insurance (AD&D). AD&D is a type of supplemental life insurance that provides coverage to your beneficiaries if you’re killed or seriously injured in a type of accident that’s covered in the policy. This may or may not suit your needs, depending on your line or work or your lifestyle.
• Investments. Investing is one approach to potentially growing your wealth, which can provide an inheritance for loved ones. But keep in mind that investments carry a degree of risk, and any proceeds may be subject to probate and estate taxes.
• Annuities. An annuity guarantees a certain amount of income each month during retirement. Here’s how it works: You pay into an annuity for a set number of years, at which point the insurance company pays back the money in monthly installments. However, some annuities charge expensive fees, and if you pass away prematurely, the value of the annuity may decrease.
A Simple Way to Get Great Life Insurance
SoFi has teamed up with Ladder to bring term life insurance coverage to members at affordable rates. Coverage runs from $100,000 to $8 million and is available in 10- to 30-year terms, all of which can be adjusted at any time.
Getting a quote takes just a few minutes, and medical tests are not required for eligible applicants seeking a policy with a benefit of $3 million or less. That means a faster approval process — and no blood draws… a win-win in our book.
The Takeaway
By following these nine steps, you’ll find the right life insurance for your needs. It’s a process that takes some time and focus, but it has a major payoff. Whether you choose a term or permanent life policy, and for whatever amount, you’re making sure your loved ones will be protected when you’re not there for them. That peace of mind is worth the effort.
The great thing about insurance shopping today is that so much information is available online. You can even click your way to a custom-tailored policy online.
SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.
FAQ
Is it hard to get approved for life insurance?
How easily you get approved for life insurance depends on a number of factors, including your age, health status, and lifestyle.
What is the best way to go for life insurance?
There’s no one-size-fits-all solution when it comes to life insurance. It’s important to think about how much coverage you need and then research the different options available to you.
Can I buy my own life insurance?
Yes, you can buy a life insurance plan for yourself.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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