If people depend on you financially, you probably need to buy term life insurance.
In this article, I’ll teach you how to shop smart for a term life insurance policy so you can get the best price while making sure that the company you choose is not at risk of folding.
A Step-By-Step Guide to Buying Term Life Insurance
|0||Know This Before You Shop||Make sure you actually need life insurance.|
|1||Decide on Your Coverage Amount||Clark Howard says you need 10x your pre-tax income.|
|2||Filter Your Search||Only consider the most financially stable companies.|
|3||Gather Your Medical History||Insurance companies all ask similar questions when you apply.|
|4||Choose a Purchase Method||Clark says to avoid brokers who will try to upsell you.|
|5||Price Shop||We'll explain the best ways to get multiple quotes.|
|6||Schedule Your Medical Exam||Insurers want to check these specific things concerning your health.|
|7||Decide and Pay||It's a good idea to set up recurring, automated payments.|
What You Need to Know Before You Shop for Term Life Insurance
Life insurance should have one purpose and one purpose alone: to replace your income for those who depend on you in the event of your early death.
If you don’t have dependents, you don’t need term life insurance nor should you buy life insurance on a child.
Term life insurance is a simple product. If you die before the end of the term of your policy, your insurance company will pay a death benefit to the person you’ve designated as your beneficiary. If you live through the term — usually 20 to 30 years — your policy lapses.
There’s no complicated investment component as there is with whole life insurance.
Money expert Clark Howard recommends level term life insurance for most everyone. “Level term” means that your monthly premiums will cost the same through the life of your policy even if it’s 30 years.
Term life insurance is known for its affordability over other types of life insurance. For example, I got term and whole life insurance quotes in September 2020 for a 35-year-old female in good health seeking $1 million in coverage. That person would pay $83 per month for a 30-year term and $627 per month for a whole life policy.
Clark also recommends that you purchase term life insurance only from a financially stable company that’s likely to survive for the length of your policy.
Now I’ll walk you through how to buy term life insurance in seven easy steps.
Step 1: Decide How Much Coverage You Need and Your Term Length
Before you buy term life insurance, figure out how many years you want to be covered and how much money you want the payout to be if you die during that period.
As I mentioned earlier, term life insurance is designed to replace your income for your dependents. Figuring out your financial obligations is the first step to buying a term insurance policy.
Clark recommends term life insurance coverage for 10 times your annual salary. So if you make $50,000 a year, Clark recommends $500,000 of life insurance.
Use common sense to determine your term insurance length. Base it on your age, your financial circumstances and that of your dependents.
For example, if your only child is four years old, you plan to pay for his or her education, you have 20 years left on your mortgage and you don’t plan to retire in the next 20 years, you should consider a 20- or 30-year term.
If you’re married, don’t have children, you and your wife plan to retire in the next 15 years and you have 10 years of mortgage payments left, a 15-year term makes sense.
Step 2: Filter Your Search to Include Only Financially Strong Companies
The biggest risk you take when you buy term life insurance is that your insurance company will go out of business while you policy is in effect.
If that were to happen, not only would you lose all of your monthly premiums, but your dependents would not get a payout if you died.
It’s crucial to buy from a company that’s likely to stand the test of time. So be sure to do research on the best life insurance policies and companies.
Clark recommends that you purchase term life insurance only from a company with an A.M. Best rating of A++; A+ is OK for terms of less than 20 years.
A.M. Best is a credit rating agency that focuses on insurance. You can read more about A.M. Best here, but the important thing is that you want your insurance company to be financially solvent for the length of your policy.
You can also visit the A.M. Best website, create a free account and search for the rating of the company you’re considering.
“I want you to stick with insurers of top strength, even if you have to pay a little more for it,” Clark says. “Even an A rating on A.M. Best is unacceptable.”
Step 3: Gather Your Medical History and Personal Information
To determine a price for your monthly premiums, insurance companies assess the likelihood that you’ll die within the term of your policy. That involves a lot of math and statistics.
In many cases, it will also require you to undergo a medical exam. When you’re starting the process of asking for a quote, most insurance companies will ask you a series of questions about your gender, age, height/weight, habits (such as nicotine use) and medical history.
You may encounter questions about any of the following, so be prepared to answer:
- State of residence and ZIP code
- Medications you’re taking
- Family history of cardiovascular disease, cancer, diabetes or kidney disease
- Driver’s license status and recent history of tickets or car accidents
- Marital status
Step 4: Choose a Purchase Method
You can buy term life insurance from an independent broker. However, the commissions are so low on term life insurance that it’s not worth their time to write that policy for you.
If you do sit down with an insurance agent, he or she may be tempted to convince you to buy whole life, universal life insurance or variable life insurance, which are much more profitable for them.
Clark thinks it’s better to buy level term life insurance on your own online, either through one of the shopping services or direct from an insurance company.
“Because you don’t need the salesperson,” Clark says. “You’re buying for a period of time you need to insure, from 10 to 30 years. You’re buying an amount of money that you’ve settled on that you’re comfortable buying, and if you buy from a company rated A++ by A.M. Best, you know you’re buying from a financially-strong company.”
“It actually is a very streamlined, easy policy to buy. It’s probably easier than picking a streaming service right now.”
So while it may be easier to go to an insurance agent, you might benefit more from shopping for your own term insurance policy.
Step 5: Price Shop by Getting Multiple Quotes
Once you’ve filtered companies by A.M. Best rating, your goal is to find the cheapest price.
Make sure you use the same inputs every time you get quotes. If you get price quotes from multiple sites and you’ve given different answers when they ask you for your weight, for instance, you won’t be looking at apples-to-apples comparisons.
I have researched the best term life insurance companies. Comparing prices from those companies and picking the cheapest option is a great way to decide.
There are also insurance comparison sites like Policygenius that allow you to get quotes from a number of term life insurance companies quickly and easily.
You should also consider calling your existing home and/or auto insurance company to see if you can bundle those policies with life insurance to get a cheaper rate (assuming that company has an appropriate A.M. Best rating).
Step 6: Schedule Your Medical Exam
Doctor’s visits can seem like a hassle especially when you don’t have any urgent issues. But you should make this visit a priority, especially if you’re in good health, because it can help you save money on your insurance policy.
There are other options, typically called “simplified term” insurance, that let you get a policy without a medical exam. But your premium probably will be cheaper if your policy does require a medical exam. It eliminates some of the unknown for the actuarial tables that determine your risk status.
The insurer covers the cost of the medical exam, which should confirm the details you provided on your application. It’s similar to an annual physical or check-up with your primary care physician.
They’ll probably check:
- Blood pressure
- Glucose levels (for diabetes)
- Whether you use nicotine or drugs
- Whether you have diseases like HIV/AIDS or hepatitis
(Yes, that means blood and urine samples and potentially an electrocardiogram.)
They may also ask about your mental health, family medical history and travel habits.
Unless you have preexisting conditions that would prevent you from “passing” a medical exam, it will likely save you money to submit to one as part of the traditional underwriting process.
Step 7: Make Your First Monthly Premium Payment
Now that you’ve learned how to buy term life insurance, find a quote that comfortably fits your budget from a provider that’s in good financial standing.
Then you’re ready to seal the deal by paying your first monthly premium!
Your insurance company may want you to set up an automatic deduction of your monthly payment from your bank account. Clark isn’t always a fan of automatically-deducted recurring payments, especially to utility companies, health clubs, mortgage lenders, cable providers and cell phone providers.
But because term life insurance is so important for your family’s safety, you get a pass this time on Clark’s usual rule.
“Most people’s life insurance early terminates. And often not because they didn’t have the money. It’s because their lives are disorganized and they forget to make the payment,” Clark says. “So in that case, allowing a draft is OK. If you can afford it, some of these policies are cheaper if you pay one premium a year instead of being billed monthly.”
The most important thing is to buy term life insurance from a company that’s going to exist for the full length of your policy’s term. Follow Clark’s guidelines on A.M. Best ratings to be sure.
Also, do take the time to price shop, as this is going to be a monthly expense for you for many years. Life insurance policies should meet your needs at a reasonable price, including term life insurance coverage.
Once you’ve decided your term length, coverage amount and the company from which you’ll purchase, buying term life insurance becomes an easy process.