How to compare life insurance quotes

How to compare life insurance quotes

When doing a life insurance comparison of quotes online, by phone or through an agency or broker, it's important to consider a few key steps. Life insurance rates are based on factors such as your current medical condition, medical history and lifestyle choices, so you may not see significant differences in premiums between companies until you’re underwritten. Working with a licensed agent or broker can help you pinpoint your financial goals and determine which insurer and type of life insurance is best suited for you.

1. Assess your needs: Your life insurance needs depend on your personal circumstances. Decide whether you need term or permanent life insurance. Term life insurance is usually ideal if you only want coverage for a specific period, such as until your children graduate from college. On the other hand, permanent life insurance provides lifelong coverage (typically up to age 95 to 121) and includes a cash value component. Determine the amount of coverage you need by considering factors like your financial obligations, income replacement and future expenses.
2. Research multiple life insurance providers: After determining your specific financial and coverage needs, explore life insurance companies that offer the policies you want. Compare each provider based on customer satisfaction and financial strength ratings from third-party agencies like J.D. Power and AM Best. This can help provide insight into how companies typically interact with their clients and if they are viewed as stable enough to effectively pay out life insurance claims.
3. Compare life insurance options: When you have gathered quotes from multiple insurers, it's beneficial to compare them carefully to find the best policy for your needs. Look at the type of policy, coverage amount and death benefit each insurer offers. Shopping around can help save you money since insurers evaluate risk factors such as pre-existing conditions differently, leading to varied premiums. Consider each policy's features and costs to ensure you get the best deal. Additionally, working with a broker can simplify the process, as they can shop around on your behalf and provide expert guidance tailored to your specific needs.
4. Apply for a policy: After selecting an insurer and deciding on the type of insurance that suits your needs, apply either through a licensed agent or online. The application process may require a medical examination, depending on the policy specifics. Keep in mind that after you purchase your policy, you’ll have a "free look" period, typically ranging from 10 to 30 days, allowing you to review the policy in detail and ensure it aligns with your expectations and requirements.

If you’re unsure how to apply for life insurance or what exact steps you need to follow, it’s best to ask your agent or life insurance company for clarification since the process can vary between companies and policy types.

Types of life insurance policies

While there are multiple types of life insurance policies, they all fall under two broad categories: term life and permanent life. The kind of policy that you choose will be based on your financial situation and your goals. Because not all insurers offer each policy type, it’s helpful to understand what each policy has to offer before obtaining a quote.

Term life insurance policies

Term life insurance provides temporary coverage, typically making it the cheapest option for life insurance. It offers a death benefit without any cash value buildup. Coverage lasts for the term specified in the policy, and once the term ends, the coverage expires unless the policy includes an option to renew or convert to permanent life insurance. Term life insurance is popular with younger families with small children who rely on a primary financial contributor. It’s also a good choice if you need coverage for a shorter period, such as while paying off a mortgage.

Permanent life insurance policies

Unlike term life insurance policies that are active for a specific period, permanent life insurance policies are designed to remain in force for the policyholder’s lifetime, provided premiums are paid. However, these policies have a maximum coverage age ranging from 95 to 121 years. Permanent life insurance policies also accumulate cash value, which can be utilized in various ways, such as borrowing against it, withdrawing a portion for immediate needs or using it to pay policy premiums. It’s important to note that borrowing and withdrawing from your cash value can impact the rate at which you accumulate value and your beneficiary’s death benefit. There are several different types of permanent policies, but they are generally much more expensive than term life policies.

Whole life insurance policies

A whole life insurance policy is the most basic type of permanent life insurance. Whole life insurance policies remain in force until the death of the insured. When you pay premiums, a portion of it is put into a cash value account, which will grow at a guaranteed rate on a tax-deferred basis. You can access this cash value via a policy loan. Loans do accrue interest that will need to be paid back. You are not required to repay them during your lifetime, but not doing so means the unpaid amount plus interest is deducted from the death benefit before your beneficiaries receive it.

Universal life insurance policies

Universal life insurance is a form of permanent life insurance with cash value and flexible premiums. The death benefit may also be flexible, which allows you to adjust your coverage as your needs change. Universal life policies accumulate interest on the cash value of the policy, and the rate of that interest will fluctuate in tandem with current interest rates. In addition to policy loans, many universal policies also provide policy owners the option to withdraw from the cash value account. This will reduce the death benefit, but, unlike a policy loan, it doesn’t accumulate interest you need to pay back.

Variable life insurance policies

Variable life insurance is a type of policy where the cash value is kept in a separate portfolio that gets invested in stocks, bonds, real estate and commodities. Because of this, your cash value amount can increase or decrease daily based on the market’s performance. It also provides no guarantees of either interest rate or minimum cash value. Variable life insurance was the first policy designed to shift the investment risk to policy owners. To obtain a variable policy, you will have to work with a financial advisor who is securities licensed.

Final expense life insurance policies

Final expense life insurance is a specific type of permanent life insurance policy designed to pay for end-of-life expenses like funeral and burial costs. Many of these policies do not require medical underwriting, but coverage limits are relatively low and the premiums may be comparatively higher than other types of coverage.

What type of life insurance policy is right for you?

Before shopping for the best life insurance policy, consider what type of financial need you want the policy to cover. Some needs may be temporary, such as paying outstanding debts like student loans or a mortgage. But some needs could be longer-term, like business succession planning, growing wealth or paying for funeral costs.

If you have both temporary and permanent needs for life insurance, you might consider purchasing a term policy that has the option to convert to a permanent policy later. Alternatively, you may prefer to purchase both a term policy and a permanent policy with different coverage amounts.

For example, let’s say you need $300,000 in coverage to help your spouse pay off your mortgage if you pass away. However, you still want coverage for your funeral costs even after the mortgage is paid. Getting a quote for a $300,000 term policy to cover your mortgage commitment and a smaller amount in permanent life insurance for your end-of-life expenses may be better than choosing just one policy. If you have money saved or prepaid for your funeral, term life insurance may be all you need. Discuss your situation with a financial planner or licensed life insurance agent to learn what approach may be best for you.

What lifestyle factors affect my life insurance quotes?

Life insurance quotes consider multiple aspects of your life to determine your rate. Age is one of the biggest factors, with life insurance generally being more expensive for seniors due to the higher likelihood of an older insured passing away earlier in the policy period. Here are some other lifestyle factors that can affect your life insurance quotes and rates:

Tobacco use

If you smoke or use chewing tobacco, your life insurance may cost more than it would for a non-smoker. Smoking increases the risk of mortality, leading insurance companies to charge higher premiums for coverage.

Health conditions

Major health conditions can result in higher policy costs. Pre-existing conditions such as high blood pressure, cancer, heart disease, diabetes, lung disease and liver cirrhosis may lead to more expensive premiums. If you are a particularly high-risk applicant, you might consider no-medical-exam coverage, though these policies are generally more expensive.

Prescriptions

A major health condition might not affect eligibility or premiums as significantly if it is well managed with medications. When applying for a policy, have a complete list of your medications, including dosages, frequency of use and duration. The insurance company will likely need this information.

Family medical history

Insurers often want to know about your family's medical history. A family history of heart disease, high cholesterol or other hereditary health conditions could increase your premiums, as it may be more likely that you will develop these conditions.

Hobbies

Engaging in high-risk hobbies such as skydiving, scuba diving or rock climbing can increase your life insurance rates. These activities inherently increase the likelihood of you experiencing harm or injuries, making the insurer more likely to charge more for coverage.

Occupations

Certain occupations are considered riskier than others. Jobs such as construction workers, pilots or race car drivers involve higher risks, which can lead to higher life insurance premiums.

Alcohol and drug use

Excessive alcohol consumption or drug use can significantly affect your life insurance rates. Insurers also view these behaviors as high-risk, which can result in higher premiums or even denial of coverage.

Budget limitations

Your budget may determine how much life insurance coverage you can purchase. It's important to consider how much coverage you can comfortably afford to prevent your policy from lapsing. Discussing your payment options with a licensed agent during the quote process can help you decide what works best for your situation.

Overall health and lifestyle

Maintaining a healthy lifestyle, including regular exercise and a balanced diet, can positively impact your life insurance rates. Insurers favor applicants who demonstrate a commitment to good health, which can lead to more favorable premiums.

How much life insurance do I need?

How much life insurance you need will vary based on several circumstances, such as:

• Age
• Age of spouse and/or children
• Likely future financial needs of spouse and/or children
• Current amount of debt, including mortgage and car loans
• Burial and funeral expenses

One way to decide how much coverage to buy is to use a life insurance calculator. If you're still unsure how much coverage to buy, work closely with your licensed life insurance agent and financial advisor for guidance.

What age should I buy life insurance?

Deciding on the right age to invest in life insurance is a question with no one-size-fits-all answer. Generally, securing a policy at a younger age could lead to more favorable premium rates, as insurers often view younger individuals as lower risk due to the strong correlation between age and mortality risk. Consequently, premiums tend to rise with age.

Yet, the necessity for life insurance can significantly differ from one life stage to another. What might be a priority for a 25-year-old newlywed could vastly differ from the needs of someone in their 50s making retirement plans. It can be valuable to consider how life insurance fits into your broader financial goals and life plans.

For instance, young adults might view life insurance as a way to financially protect their growing families. In contrast, individuals in their peak earning years might focus more on how life insurance can supplement retirement income or pay estate taxes.

Given the complexity and the personal nature of these decisions, pinpointing an exact age to buy life insurance can be difficult. However, consulting with a licensed life insurance agent could provide invaluable advice. They can guide you through the various options and help tailor a policy that aligns with your evolving needs and goals, ensuring that you choose a plan that is most beneficial for your specific circumstances.

Frequently asked questions