How to Buy Life Insurance: Tips for a First Time Buyers

The numbers might surprise you – only 54 percent of Americans had life insurance coverage in 2020. Many people feel uncertain about buying their first life insurance policy, and you’re not alone in this decision.

Timing plays a substantial role in life insurance decisions. People often need more coverage than they originally think. Your premiums will increase as you age, but you can lock in your rate after buying a policy. The whole ordeal can take several weeks with a fully underwritten policy, while accelerated underwriting might only need a few days.

This piece guides you through everything you need to secure the right coverage. You’ll discover how to calculate your coverage needs, understand different policy types, evaluate providers, and complete your application. The guide includes practical tips that help you make smart choices throughout the process.

Understand Your Life Insurance Needs

Life insurance shoppers need to grasp why they need coverage to make a smart purchase. A recent survey shows that if the main breadwinner died unexpectedly, 44% of households would struggle financially within six months. Even more concerning, 28% would face hardship in just one month.

1. Know why you’re getting life insurance

People buy life insurance to meet specific needs. The numbers tell an interesting story – 84% want to cover funeral and final expenses, 66% aim to transfer wealth, and 62% need to replace lost wages. Many more reasons exist: 57% want to supplement retirement income, 50% aim to pay off mortgages, and 48% need to cover home expenses.

Your unique circumstances will point to the most important reasons. To name just one example, singles without children typically need less coverage than those supporting families. But life insurance still makes sense for singles – it helps cover end-of-life costs and financial obligations, especially with cosigned debts.

2. Estimate how much coverage you need

You’ll need to look at your financial situation from every angle to determine coverage amounts. The simple “10x your income” rule might give you a starting point, but it’s nowhere near enough without adjustments.

A detailed approach means adding up:

1. Your outstanding debts (excluding mortgage)
2. Income replacement needs (annual income × years needed)
3. Mortgage balance
4. Education costs for children
5. Final expenses (averaging $10,000)

The next step is to subtract existing assets like savings accounts, college funds, and current life insurance policies. This shows you exactly how much life insurance should cover.

3. Use tools like the DIME method or online calculators

The DIME method is a great way to get your coverage needs calculated. This acronym stands for:

• Debt: Total all existing debts excluding mortgage
• Income: Multiply annual income by years family would need support
• Mortgage: Include remaining balance
• Education: Add estimated college costs for each child

Many reputable insurers provide online calculators that offer tailored coverage estimates based on your answers about your life situation. These tools factor in your marital status, age, and life stage.

Licensed agents or financial planners can guide you better, especially with complex situations. Note that your coverage needs usually decrease as you age, build savings, and pay down debts.

Explore Policy Types and Features

You need to pick the right type of policy after figuring out your coverage needs. Life insurance comes in two main categories. Each category has unique features that help meet different financial goals.

4. Learn the difference between term and permanent life insurance

Term life insurance covers you for a set time period (usually 10, 15, or 20 years). The original premiums are lower than permanent insurance. Term insurance ends after the selected timeframe and doesn’t build any cash value. You won’t receive a death benefit if you outlive your policy term.

Permanent life insurance protects you throughout your life as long as you pay the premiums. These policies build cash value that grows tax-deferred. You can access this money during your lifetime through withdrawals or loans. The original premiums are higher, but the policy can become a valuable part of your long-term financial strategy.

5. Understand whole, universal, and final expense policies

Whole life insurance comes with fixed premiums that stay the same forever. It guarantees cash value growth and death benefits. Policies from mutual insurers might also pay dividends.

Universal life insurance lets you adjust premiums and death benefits. You can raise or lower your premium payments within limits. This flexibility helps you keep coverage when your finances change. On top of that, it offers special versions like indexed universal life that ties cash value growth to market indexes.

Final expense insurance helps cover end-of-life costs. Coverage ranges from $2,000 to $50,000. These policies are available for seniors or people with health concerns. They need just a few health questions instead of medical exams. Monthly premiums start at $63, based on your age and health.

6. Think about riders and add-ons to get extra protection

Most policies offer optional riders to improve your coverage. Here are some popular options:

• Accelerated death benefit rider: Lets you use part of your death benefit if you become terminally ill
• Waiver of premium rider: Covers your premiums if you become disabled and can’t work
• Children’s term insurance rider: Gives affordable coverage for your children

A careful look at these options will give a policy that matches your protection needs.

Compare Providers and Get Quotes

Your next priority becomes selecting the right insurance company after you identify your coverage needs and policy type. This choice matters a lot because your selected insurer will be your financial partner for decades.

7. Research financially strong and reputable insurers

Financial stability should top your list since you need an insurer that will exist to pay claims when your family needs it most. A recent study shows that only 29% of life insurance customers “strongly agree” that their insurer makes complex policies simpler. This statistic shows why choosing the right company matters.

Check ratings from these key agencies:

• A.M. Best (considered the gold standard for insurance ratings)
• Standard & Poor’s
• Moody’s
• Fitch

Note that an A+ from one agency doesn’t match an A+ from another. Companies with “A” ratings or better demonstrate financial stability and can pay claims reliably.

8. Use an independent agent or online tools to compare quotes

Independent agents can sell you policies from any company they work with. They represent multiple insurers and help you find suitable options from several carriers. This approach saves time and might find better rates that match your specific situation.

Online marketplaces let you compare quotes side-by-side after you submit a brief application. These tools make shopping around easier, which helps because prices can vary significantly between companies.

9. Look at customer reviews and service ratings

Customer service quality affects your experience significantly, especially with complex policies. State Farm ranked highest in J.D. Power’s 2024 Individual Life Insurance Study for the fifth consecutive year. Guardian Life and MassMutual followed closely.

The National Association of Insurance Commissioners (NAIC) website helps you check complaint records for each company. Their data shows the number of complaints filed against each insurer relative to their size, which reveals actual customer experiences.

The best provider ended up being one that combines financial strength, competitive pricing, and quality service—these factors change based on your specific needs and circumstances.

Apply and Finalize Your Policy

The application process is the final crucial step in your life insurance trip. After completing your research and choosing a provider, you need to secure your coverage with proper documentation and verification.

10. Fill out the application accurately

Your life insurance application is a legal document that demands complete honesty. Any intentional misrepresentation could lead to denial of coverage or rejected claims. Most insurers will give themselves a two-year contestability period. During this time, they can break down application details if you die and might deny benefits if they find dishonesty.

Your application needs these details:

• Personal and medical history
• Family medical background
• Lifestyle information and hobbies
• Financial details and income verification
• Beneficiary information

Getting the details right matters for approval and correct premium rates. Small mistakes or missing information could delay your application or make it cost more.

11. Prepare for a phone interview or medical exam if needed

You’ll likely have a phone interview that takes about 30-40 minutes after submitting your application. This call checks your identity, confirms you want the coverage, and gathers more information.

Keep these documents ready for the interview:

• Driver’s license and Social Security numbers
• Names and contact information for your doctors
• Details about medical treatments and medications
• Information about your income and net worth

A medical exam might be needed based on your policy type and coverage amount. These exams usually take 15-45 minutes and include simple measurements, vital signs checks, and blood/urine samples. The exam will work better if you avoid caffeine, alcohol, and heavy exercise 24 hours before.

12. Review the offer and use the free-look period wisely

After approval, you’ll get your policy with a built-in protection feature—the free-look period. This window lasts 10-30 days depending on your state and lets you cancel for any reason with a full premium refund.

Take time to get into your policy’s terms, coverage details, and exclusions during this period. Contact your agent right away if something seems unclear or incorrect. This review will give a clear picture of your coverage before it becomes final.

Let your insurer know quickly if you want to cancel during this window to get your complete refund without penalties or surrender charges.

Conclusion

Life insurance is a vital financial decision that protects your loved one’s future. This piece walks you through everything from determining your coverage needs to finalizing your policy. Life insurance does more than replace income—it covers final expenses, pays off debts, funds education, and gives you peace of mind.

The process might feel daunting initially, but you can handle it step by step. Your first move is to calculate specific coverage requirements using methods like DIME or online calculators. Then pick between term and permanent policies based on your long-term goals. Term policies give you affordable coverage for specific timeframes, and permanent policies offer lifetime protection with cash value benefits.

You should research insurance providers really well. A provider’s financial stability ratings, customer reviews, and competitive pricing are the foundations of making the right choice. An independent agent can help you compare options quickly.

The application process needs your full attention to detail. Accurate information will give a smooth process and fair pricing. The free-look period lets you verify that your policy meets your needs before you fully commit.

Your life insurance needs evolve as your life changes. Regular policy reviews help line up your coverage with your current financial situation and family needs. Life insurance remains one of the most meaningful ways to protect your family’s financial security. The protection you choose today safeguards your family’s tomorrow.