Shopping for Life Insurance
Learn what to look for when choosing a life insurance policy
Buying life insurance is one way you can help protect your loved ones in case of the unexpected. For many, life insurance can provide peace of mind and a sense of financial security.
A life insurance policy could help provide for your family after you’re gone. It can help pay for anything from health care and funeral costs to housing payments, living expenses and debts.
Maybe most important of all, life insurance might help buy your family time and provide options if the unexpected happens. That could mean delaying tough decisions like downsizing their home or finding a new job. And it could help eliminate your family’s financial worry while they’re grieving.
Talking about life insurance can bring up difficult subjects, but choosing a policy doesn’t have to be a stressful process. Here are a few things to consider when you’re shopping for a life insurance policy.
Types of Life Insurance
There are two basic types of life insurance: term and permanent.
Both term and permanent life insurance policies help provide for your family if you’re no longer there to provide for them. These policies feature what’s called a “death benefit”—a guaranteed payout that goes to the beneficiary of the policy in the event of your death. Keep in mind that the death benefit could be subject to taxes.
While term and permanent policies both offer a death benefit, these policies differ in a few ways.
Term Life Insurance
Term life insurance policies are considered to be temporary life insurance solutions because they only last for a specific length of time. Term policies usually offer coverage terms of 10, 15, 20 or 30 years. But coverage terms vary from company to company.
As long as premiums are paid on time, the death benefit payout is guaranteed for the entire length of the policy. But if the policyholder outlives the policy’s term, there’s no death benefit payout.
Because of their temporary nature, term policies typically have relatively low premiums and are less expensive than permanent policies.
Permanent Life Insurance
Like term life insurance, permanent life insurance is designed to provide your beneficiaries with a payment in the event of your death. However, permanent policies—as the name suggests—typically provide protection for your entire lifetime, not just a specific period. They’re typically more expensive than term policies and usually require higher premiums.
Permanent life insurance policies also include a savings or investment component known as the “cash value” of the account. As premiums are paid to the insurance carrier, a portion of the payment goes into savings or investments. Growth from those savings or investments is tax deferred and can sometimes even be used to increase the death benefit.
There are many types of permanent life insurance, but “whole,” “universal” and “variable” are three of the most common.
- Whole Life Insurance: Traditional whole life insurance includes a savings component that guarantees a minimum rate of return on the cash value of the policy. That means your cash value will earn interest at or above a rate predetermined by the insurance carrier.
- Universal Life Insurance: With universal life insurance, a portion of the premiums is invested in stocks, bonds or other available investment options. Growth from the investments can be used to pay the cost of the premiums. And whether universal life insurance includes a guaranteed death benefit depends on the policy.
- Variable Life Insurance: Variable life insurance works a lot like universal life insurance. But variable policies could be considered riskier than universal policies. That’s because a bigger portion of the premiums is invested. And like universal life insurance, a variable life insurance policy may not have a guaranteed death benefit.
How Much Life Insurance Do I Need?
There are no set rules for determining how much life insurance coverage you need. Everyone’s situation is different. But there are numerous factors to consider as you figure out how much coverage is right for you. Factors to consider may include things like future income, outstanding debts and whether you have people who depend on you.
You may want to speak with a financial planner or adviser. They can help you figure out how much life insurance is right for you. Many of them may recommend coverage for 5 to 10 times the amount of your annual salary. But keep in mind that the longer the length of the policy, the higher your quoted rates might be.
Choosing a Life Insurance Policy
Find a Reliable Insurance Carrier
Finding the right life insurance carrier can involve weighing price, customer service and the financial stability of the carrier, among other things.
J.D. Power®, an independent ratings firm, publishes customer satisfaction scores for the largest life insurers each year. The scores factor in everything from product offerings and policy prices to the ease and speed of the application process.
AM Best®, a credit rating agency with an emphasis on the insurance industry, is another source for comparing insurance carriers. Companies are rated on their ability to pay out as promised.
When shopping for life insurance, you may want to get quotes from multiple sources.
You could contact different carriers or go with an independent insurance broker. You might also want to contact your existing home and auto insurers. They can sometimes offer discounts for bundling life insurance with your other policies.
Life Insurance Application Process
Once you identify a carrier or broker you like, it can be helpful to know what to expect in the application process.
Before you apply for life insurance, make sure you know your medical history. In most cases, insurance companies will request some basic information about you and your family’s health. You may also have to undergo a medical examination.
The healthier and younger you are, the lower your premiums will likely be. But remember that the criteria are subjective. And it’s up to the insurance company to make the final determination.
Buying life insurance can be both an emotional and a financial decision. But you can simplify the process—and eliminate some stress—by knowing what to expect before it’s time to buy.
And consider speaking with a financial planner or adviser when you’re shopping for life insurance. They can help you choose the policy that’s right for you.
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.