Life insurance provides a financial safety net that your spouse, children, and other family members could depend on if you die. Buying a life insurance policy doesn't always top the to-do list because most people don't like to think about dying. Whether you're just curious, looking for information, or ready to buy, here's how to get the life insurance you need.
- Life insurance can be an essential part of your overall financial plan.
- Having life insurance can make it easier for your beneficiaries to pay everyday living expenses if you die.
- You can buy life insurance directly from an insurance company or through an agent or broker.
- Underwriting guidelines may be different throughout the COVID-19 crisis.
How to Get Life Insurance
Life insurance is not a one-size-fits-all purchase. You have to decide on the type, length, and amount of coverage you need. As an example, you might want to buy a 20-year, term life policy with a $500,000 benefit.
Of course, you also have to decide where to buy it. In general, there are three places to get life insurance:
- Directly from a life insurance company
- From a life insurance agent
- From a life insurance broker
Life Insurance Companies
If you want to go directly through an insurance company, you can generally buy a direct term policy. This type of policy fulfills your insurance needs for a specific amount of time—such as for 10, 20, or 30 years.
To buy this type of policy, you typically fill out an online application, review your quotes, choose a policy, and pay. Depending on the company, you may have an option to buy a guaranteed issue policy that doesn't require a medical test. A direct term policy can be a good option for people who may otherwise have trouble getting life insurance because of health issues.
A direct term policy can be a quick way to buy coverage, especially if you know the exact type of coverage you want (and it happens to be something the company offers). However, if you need any guidance, have any questions, or want more options, you're better off with an agent or broker.
The amount of money your life insurance beneficiaries will receive if you die is called a death benefit.
Life Insurance Agents
Agents and brokers sell most life insurance policies. Both act as intermediaries between insurance companies and insurance buyers. And both must have the appropriate licenses to sell insurance products in the states in which they operate. However, while people often use these titles interchangeably, there are some distinct differences.
The most significant difference is who the person represents. An agent is appointed by an insurance company to sell its products. An agent who represents one insurance company is called a "captive agent," while one who is affiliated with several companies is called an "independent agent." Life insurance agents represent companies, not buyers. Their goal is to match you with coverage from the companies they represent—which may or may not be exactly what you need.
Life Insurance Brokers
Brokers, on the other hand, represent insurance buyers—not companies. They work independently and don't have contracts with any specific insurance companies. That means they can make unbiased recommendations that suit each customer's needs. Typically, brokers work with a wide variety of insurance companies to provide customers with a good selection of quotes and plans.
Term life insurance is more affordable, while permanent life insurance is more comprehensive and can include a cash value.
Where to Buy Life Insurance
If you decide to work with an agent or a broker—instead of going directly through an insurance company—you have another decision to make: Should you shop locally or online?
A local insurance agent or broker is a good option if you want personalized advice, are considering permanent life insurance, or have a complicated situation. An agent or broker is also a good choice if you're not very tech-savvy and would have trouble trying to navigate an online application.
Alternatively, if you have a general idea of your coverage needs, want a term life policy, or prefer to shop without help, an online agent or broker may be a good fit. Of course, you have to be comfortable taking care of business online to make this option work.
Life Insurance Accreditation
Many life insurance agents and brokers have accreditations offered by industry agencies such as the American College of Financial Services and The Institutes (formerly the Insurance Institute of America). Some of the common acronyms you might come across include:
- CLU—chartered life underwriter
- CFP—certified financial planner
- FSCP—financial services certified professional (this replaced the LUTCF, or "life underwriter training council fellow" designation)
If an agent or broker you're considering working with has a designation (or designations) you don't understand, be sure to ask what the acronym stands for, which agency issued it, and how they earned it.
Buying Life Insurance During COVID-19
The COVID-19 crisis has introduced some new challenges to the life insurance industry. For one, in-person exams are difficult, if not impossible, when people are supposed to be social distancing. Still, life insurance companies are open for business, accepting applications, and adapting their client onboarding procedures to accommodate the evolving landscape.
Some insurers, for instance, have shifted to evaluating medical records, prescription history, and the like—as opposed to sending a paramedical professional to your home to gather information. Others have extended the time frame for completing a traditional exam, while providing temporary, interim coverage. You can also connect with agents via phone or video conference and sign any documents electronically.
Don't be surprised if you see some COVID-19-related questions on your application, such as "Have you or has someone in your household been tested or treated for COVID-19?" or "Have you been on a cruise during the last 60 days?" Keep in mind that if you answer "yes" to these questions, it shouldn't prevent you from getting a policy—but if you answer dishonestly, it could void your policy later.