If you’re a first-time life buyer—no matter why you’re considering a policy—know that it isn’t a difficult process. You will, however, need to make some decisions before looking. Consider these tips as you begin your search.
What to know when buying life insurance
Don’t get overwhelmed when looking at life insurance. You need to weigh many factors, including how much coverage you need, how much you can afford, and whether it’s the right time to buy. To avoid analysis paralysis, take it a step at a time.
How much do you need?
If you’re thinking, “How much life insurance do I need?” lay out a list of expenses your family would have to cover if your income weren’t there. (If you’re a caregiver, there’s a financial value in that too.) That may include housing, transportation, food, education, health care, clothing, utilities, child care and other daily expenses. Include your potential funeral costs as well. Also think about how long your family would need the money in your absence. If you have younger children, for example, you’ll likely need to cover more expenses for more time.
Also, if you can get life insurance through an employer or organization at a lower group rate, you may be able to meet your needs by buying less coverage on your own. (Just note that you might lose employer-sponsored insurance—or have to pay more for it—if you leave your job.)
How much can you afford?
Life insurance costs can vary widely based on the policy type, the size of the death benefit (the “face value” on the policy that’s paid to your beneficiaries if you die), length of coverage, and your age and health. Evaluate your budget Opens in new window by looking at your monthly expenses and determining how much you can afford to allocate to insurance.
If money is tight, consider cheaper options, such as term life insurance. The most common—and generally least expensive—type of life insurance, term covers a specific time frame, typically 20 or 30 years. You usually don’t keep the coverage beyond the term, though you may be able to extend it at a higher cost.
When should you buy
People often think about life insurance when a life event occurs—maybe you get married, have a child or buy a house. You may also want to consider simply buying life insurance when you're younger, like in your 20s and 30s, when it will cost less.
Pick a policy that makes sense for you
In your search, you’ll have to weigh term vs. permanent life insurance. Term insurance is temporary—it protects your loved ones for a certain number of years. Permanent insurance can last as long as you want (and continue to pay for) coverage, and it can include an investment-type feature that builds a “cash value.” You can access the cash value via a loan or withdrawal while you’re alive, or, in some cases, use it to pay for your premiums.
Permanent insurance usually costs more than term and comes in different flavors that offer different levels of flexibility and benefits. People often use permanent insurance to build funds for retirement, help care for a family member or leave a legacy. Some opt for a combination of both kinds of policies.