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, in part because most people don't like to think about dying. Whether you're just curious, looking for information, or ready to sign up, here's how to buy the life insurance you need.
- Life insurance can be an essential part of your overall financial plan.
- A major purpose of life insurance is to help your dependents replace your income if you die.
- You can buy life insurance directly from an insurance company or through an agent or broker.
- The COVID-19 crisis has changed some of the ways insurers do business.
How and Where to Buy 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 death 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
Buying Directly From a Life Insurance Company
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 10, 20, or 30 years.
To buy this type of policy, you typically fill out an online application, review your price 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 guaranteed issue policy can be a good option for people who might otherwise have trouble buying life insurance because of health issues.
Opting for a direct term policy is 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 questions, or want more options, you're probably better off going through an agent or broker.
Buying Through a Life Insurance Agent
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 where they operate. However, while people often use the two 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 sell you coverage from the companies they represent—which may or may not be exactly what you need.
Buying Through a Life Insurance Broker
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 should be able to make unbiased recommendations that suit each customer's needs. Typically, brokers work with a wide variety of insurance companies to provide customers with a selection of price quotes and plans.
Term life insurance is more affordable and simpler to buy than permanent life insurance, which combines life insurance coverage with an investment account.
Buying Online or in Person
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 rather than term life, or have a complicated situation. An agent or broker can also be a good choice for those who are 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. There are also numerous quote comparison websites that can get you prices from multiple insurance companies.
Common Life Insurance Credentials
Many life insurance agents and brokers have accreditations offered by industry groups such as the American College of Financial Services and The Institutes (formerly the Insurance Institute of America) attesting to their expertise. Some of the common designations you might come across are:
- CFP—certified financial planner
- ChFC—chartered financial consultant
- CLU—chartered life underwriter
- 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 multiple designations) you don't understand, don't hesitate to ask what the acronym stands for, which organization issued it, and how they earned it.
Buying Life Insurance During COVID-19
The COVID-19 pandemic has presented some new challenges to the life insurance industry. For one, in-person physical 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 or office to see you. 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.