7 steps to take when considering buying life insurance

Key takeaways

• Start by matching policy type to your life stage and financial goals. 
• Estimate coverage from debt, income replacement, and future expenses. 
• Review beneficiaries, riders, and underwriting before you apply.  

A life insurance agent can help you compare options and narrow the right fit. Whether you’ve just started in your career, recently got married, or are planning for a family, buying a life insurance policy might be something to add to everyone’s to-do list, and finding the right policy can be easier than you think. What follows are seven items to check off your list when considering buying life insurance.

Step 1: Compare types of life insurance policies

You probably know life insurance is important, and that’s just the first step. Life insurance was originally designed to protect people from financial loss when the main breadwinner passed away, but today people have many options and look into policies for a number of different reasons. For example, one of the first questions you’ll need to answer is whether a term life insurance or permanent life insurance policy is right for you. Consult the chart below for more specifics on what each of these policies provide so you can pick the plan that will make you feel fully covered based on your needs.

Speak to your financial representative for additional information, and to find out which type of life insurance is most suitable for your needs.
 

Pro tip: When researching, it helps to ask around to see what policies friends and family have — especially those in similar life stages — as well as what factors they used to determine what plan was best for them. Keep in mind that many employers provide basic life insurance policies for their employees, as well, but the coverage is often minimal and you may need more.

Step 2: Assess how much life insurance coverage you need

An integral aspect of life insurance is figuring out exactly how much coverage you actually need. The number you come up with will include a myriad of factors like how many dependents you have, and whether or not you want your policy to cover college education for your kids, your assets, your income, and your mortgage, among other things.
 

Pro tip: If you have a financial planner, this would be a fantastic thing to discuss. If you don’t, there’s no need to worry. An easy way to determine how much estimated coverage you might need is to use the DIME method to give you a better idea of recommended coverage. One other thing you might want to include in your overall number: funeral costs. Funerals tend to be fairly expensive, so providing this cushion to your loved ones to use at a time when they would be grieving is a good idea.

Step 3: Choose a life insurance beneficiary(ies)

A beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. In general, you have a couple of options: You can name one person, two or more people, or select the trustee of a trust you’ve set up.
 

You’ll also want to be mindful of a multitude of factors when designating a beneficiary of a life insurance policy. Things like the owner’s desires, individual circumstances affecting a beneficiary, creditor protection laws, and any estate, gift, and income tax implications, all should be taken into consideration.
 

Pro tip: Remember to consider your personal circumstances, as well. Do you have a spouse, children, or perhaps close living relatives you’d like to leave your estate to? Be sure to include them in your policy by name.

Step 4: Decide if you need a rider on your life insurance policy

A rider is a provision of a life insurance policy that adds to or amends the coverage or terms. They enhance your coverage, but also usually add to the cost. A good way to think about life insurance riders is to consider them as an additional protection feature. Some examples include a critical care rider, a long-term care rider, and an unemployment rider.
 

Pro tip: Chat with your friends and colleagues, especially those in a similar life stage or earning potential, to get a sense for what they have with regard to riders. As always, check in with your insurance agent for the best recommendation.

Step 5: Evaluate the life insurance company’s financial strength and claims history  

A life insurance policy is a long-term commitment. The company you choose needs to be financially strong enough to honor it, potentially decades from now. Five independent agencies rate the financial strength of insurers: A.M. Best, Fitch, Moody's, Kroll Bond Rating Agency, and Standard and Poor's. Each uses its own rating scale, but all assess the same core factors — financial performance, company management, business profile, and risk management. Check more than one agency to get a complete picture.

For claims history, your state's department of insurance publishes complaint ratios and claims data for every insurer operating in your state. A lower complaint ratio relative to company size is generally a positive sign.

Pro tip: Before committing to a policy, look up the insurer's financial strength rating with A.M. Best. It is one of the most widely used measures of financial strength in the life insurance industry. Your life insurance agent can explain what the ratings mean for the company you are considering.
 

Step 6: Understand the underwriting process

Before a policy is issued, the insurer assesses your health and risk profile through a process called underwriting. This helps determine whether you qualify for coverage and what your premium will be.  

Most applications involve a review of your medical history, lifestyle habits, and in some cases, a basic medical exam covering height, weight, blood pressure, and a blood and urine sample.  

Not all policies require a full exam. John Hancock's ExpressTrack® process allows qualifying applicants to receive an underwriting decision without a traditional medical exam.  
 

Pro tip: Apply while you are in good health. Doing so generally gives you access to better coverage options. Your life insurance agent can walk you through what underwriting will look at based on your specific situation.

Step 7: Discover that peace of mind is attainable

After all the planning, life insurance is a policy that is meant to provide your loved ones with financial support should something happen to you. For many people, that can be hard to imagine, but by putting into place a life insurance policy, you’re helping to secure your loved ones’ financial futures in the event of the unexpected.  

Pro tip: Apply while you are in good health. Doing so generally gives you access to better coverage options. Your life insurance agent can walk you through what underwriting will look at based on your specific situation.

Ready to find the right life insurance policy

Start with your goals. Decide between term and permanent coverage, calculate how much your family would actually need, and choose your beneficiaries carefully.

Then look beyond the policy itself. Evaluate the financial strength of the insurer, understand what riders are available, and know what the underwriting process  involves before you apply.

And when you are ready, talk to a life insurance agent. They can help you ask the right questions and find a policy built around your specific situation.  

Frequently asked questions
 

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