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7 Key Considerations When You’re Buying Your First Life Insurance Policy

Life insurance helps families feel financially secure if a primary wage earner passes away unexpectedly. However, only half of Americans (52%) report having life insurance. Many people say they have not purchased coverage because they do not feel knowledgeable about life insurance.

If you want to buy your first life insurance policy but are unsure where to start, here are seven key points to consider before shopping for coverage.

1. Understand the Main Types of Life Insurance

There are two main types of life insurance: term life insurance and permanent life insurance. Term life policies provide coverage for a set period, such as 5, 10, or 20 years. At the end of the term, the coverage expires. Some term life policies are renewable, meaning policyholders can continue their coverage for another term but usually at a higher cost.

Permanent life insurance policies are designed to provide coverage for an entire lifetime as long as the premiums are paid. They typically include a death benefit and a savings portion known as a cash value. Policyholders can withdraw or borrow from their cash value during their lifetime.

2. Learn What Common Life Insurance Terms Mean

The life insurance industry uses jargon and technical terms unfamiliar to first-time buyers. Some common terms you’re likely to encounter during your search for life insurance include:

  • Beneficiary: The person you name to receive the policy’s death benefit
  • Cash value: In permanent life insurance policies, a savings element that builds up over time
  • Death benefit: The amount of money paid to the beneficiary when the policyholder passes away
  • Face value: Another term for the policy’s death benefit
  • Premium: The amount an insurance company charges for a policy
  • Riders: Optional add-ons that let consumers modify their life insurance policies
  • Surrender value: The amount of money a person receives if they cancel a permanent life insurance policy
  • Underwriting: The process companies use to decide whether to sell a policy and what premiums to charge

3. Think About Why You Want Coverage

People choose to buy life insurance coverage for a wide variety of reasons. Considering yours helps you choose a type of policy and term length that supports your financial goals. 

For example, a person who wants to continue providing for loved ones who depend on their income may choose a term life policy that lasts throughout their working years. Someone who wants to settle outstanding debts, such as a mortgage or car loan, might choose a policy that remains active until the loans are paid.

4. Estimate How Much Coverage You Need

Life insurance pays a lump sum of money, known as a death benefit, to a person’s chosen beneficiaries. Insurers offer coverage amounts ranging from as little as $5,000 to as much as $5 million or more. Consider your financial goals to decide how much coverage you need. 

For example, when a person wants life insurance to replace their income, the general rule of thumb is to buy a policy worth 10 to 15 times their annual income. That means a person who earns $70,000 per year might decide they need a policy worth between $700,000 and $1.05 million.  

5. Look Into Life Insurance Policy Riders

Life insurance policies can do more than provide a death benefit to a person’s chosen beneficiaries. Insurers sell add-ons, known as riders, that provide extra coverage or even allow the policyholder to access their death benefit during their lifetime. 

Rider availability varies depending on the insurer and the type of policy. Some of the most common riders include:

  • Accidental death rider: Pays an additional benefit in addition to the face amount if death results from a covered accident
  • Waiver of premium rider: Allows the policyholder to stop paying premiums if they become disabled
  • Accelerated death benefit rider: Lets policyholders access a portion of their death benefit early if diagnosed with a terminal illness
  • Critical illness rider: Lets policyholders access some of their death benefit if diagnosed with a covered serious illness
  • Return of premium rider: Refunds the entire cost of premiums to policyholders who are still alive when their policy expires

6. Consider Your Budget

Life insurance companies charge premiums on a monthly or yearly basis for the length of the policy. Review your budget to determine how much you can afford to spend for the life of the policy. 

Life insurance costs vary depending on many factors, including the policyholder’s age, gender, lifestyle, chosen policy type, and desired coverage amount. Consider getting quotes from several insurance companies to ensure you get coverage at a fair price.

Life insurance tends to be more affordable than consumers expect. For example, a healthy 50-year-old man who buys a 10-year, $250,000 term life policy might pay around $20 to $35 monthly for his coverage. 

7. Prepare to Answer Health Questions

Most types of life insurance policies require medical underwriting as part of the application process. You’ll answer questions about your health history and, in some cases, undergo a medical exam arranged by your insurer. 

Gather details about your medical history to help the application process go smoothly. Be prepared to provide current health conditions, medication names, dosages, tests, treatment dates, and contact information for your doctors. Ask relatives for information if you’re unfamiliar with your family’s medical history.

Some types of life insurance do not use medical underwriting, which appeals to people with severe health conditions. An example is guaranteed issue life insurance, a type of whole life policy that does not require applicants to answer any health questions. 

Putting It All Together

If you have loved ones who depend on your income, a life insurance policy could help you protect their financial security. However, when you’re unfamiliar with life insurance, choosing the right coverage option for your needs may feel overwhelming.

Consumers can choose between two main types of coverage, term life, and permanent life, and customize their chosen policy with riders. The right amount and length of coverage depend on a person’s individual needs. 

Talk to a trusted life insurance agent for help narrowing down your life insurance options and buying a policy. 

Plan for your family’s future. Get a life insurance quote today.

Get a quote

Plan for your family’s future. Get a life insurance quote today.

Get a quote