Understanding Life: How can I choose the best term life insurance policy?
Shopping for term life insurance can come with a lot of questions. How much do you need? How long do you need it for? And how much should you really be paying?
The answer? It depends. The “best” term life insurance varies based on your age, health, lifestyle, coverage needs, and other factors. Just because your neighbor or coworker has a policy they love, that doesn’t necessarily mean it’s the right one for you.
Not to worry. When you understand what to look for in a policy, it’s simple to lock in the right one to protect your family. Here’s our checklist of the top six things to consider, so you can choose the best term life insurance policy for you.
What is term life insurance?
First, a quick recap on term life insurance. These policies are usually the most straightforward, affordable type of life insurance, making them a smart choice for most shoppers. A healthy 30-year-old can buy a $250,000 term life policy for about $160 a year and the monthly costs don’t go up once you buy.
With terms ranging from 10 to 30 years, term life offers a guaranteed tax-free payout if you die during the term.* That means your family can pay for expenses like a mortgage, college for the kids, or other day-to-day costs, when you’re not around to provide for them.
Best term life insurance: Our top 6 checklist
Ready to find your perfect fit? Here’s what to consider in a policy:
How Long Do I Need It?
In general, term life insurance should cover you for as long as you have dependents at home or other big financial commitments. When choosing a term length, think about:
- Your family situation. Is your baby still in diapers and the ink still fresh on your mortgage docs? Then you’ll want a longer term than someone who just dropped their youngest off at college.
- Your age. If you’re applying for a new policy, age matters. For example, most carriers won’t qualify a 65-year-old for a 30-year policy.
- Any existing coverage. If you have an existing policy but need more coverage because of a change, like a new baby or a promotion, you can “ladder” policies. That means you buy a second policy that starts now and continues to run after the first runs out.
How Much Coverage Should I Get?
Technically speaking, the sky is the limit when it comes to coverage amounts, as long as your financial situation justifies it. That said, a bigger policy means a bigger premium, and you don’t want to pay for more coverage than you need.
While the general rule of thumb is to take out a policy that provides for at least five to 10 times your annual salary, each person’s situation is different. Do you have a spouse that also works? What if you have a lot of kids? Should your annual salary number include your earnings from your side hustle? Your best bet is to talk to an expert who can help you nail down a comfortable figure.
How Much Should I Pay?
The monthly price you pay for life insurance depends on a lot of things, including:
- Your health. Carriers typically look at your current health, any prescriptions you’re taking, and your medical history.
- Whether you smoke. Smokers can expect to pay higher rates on average than non-smokers.
- Your age. The older you are, the higher your rate is likely to be (one more reason to get covered now).
- Your hobbies. Just like your job, risky hobbies like skydiving or scuba diving can mean higher rates. Traveling to countries with higher security risks can also have an impact.
- Your family history. If your parents or siblings passed away early from cancer or heart disease, it could mean a bump up in rates.
The good news? Life insurance is probably a lot cheaper than you realize: A 2018 LIMRA study found people think life insurance is three times more expensive than it actually is. To get the most bang for your buck, consider calling an insurance agent, who can offer access to policies from multiple carriers and recommend the best fit for your needs. For example, if you smoke an occasional cigar but don’t touch cigarettes, some carriers will still give you a lower non-tobacco coverage price.
How Should I Buy It?
While you can buy life insurance from dozens of carriers, you probably don’t want to spend hours contacting each one for a quote. Before you start the shopping process, consider whether you’re comfortable going it alone online, or prefer to seek the guidance of a trusted professional.
Research shows that talking to an agent in person or on the phone is helpful to more life insurance shoppers than any other resource, including online research. Plus, you won’t pay any extra for working with one. Insurance rates are regulated to make sure you always pay the same price for a particular policy, no matter where you buy it.
Here’s how each option works:
- Shopping online. Insurance aggregator sites allow you to compare multiple quotes, but may not offer the specific guidance you need to find the right policy for your situation and goals.
- Phone agent: Talking to an agent over the phone is convenient, and still allows you to get personalized advice from an industry licensed professional. Most agents can offer a customized quote after a five- to 10-minute phone call.
- In-person agent: If you feel more comfortable working with someone face-to-face or have complex coverage needs, some agents offer in-person consultations.
When Do I Need Coverage?
How quickly do you need coverage? If the answer is “ASAP,” look for a carrier who will fast-track your application. Some insurance companies will waive your medical exam if you’re in good health and offer immediate underwriting to get you into a policy in a matter of minutes, not weeks. For policies with a traditional underwriting process, expect the time from quote to coverage to take anywhere from three to eight weeks.
Do I Need Any Extras?
Plenty of insurance carriers offer special features, including additional insurance riders to cover your young children, accidental death riders that increase your payout if you die in an accident, and waiver of premium clauses if you’re no longer able to pay your premiums. If you have something specific in mind, talk to an agent.
Plan Ahead With eFinancial
Not all term life insurance policies are created equal, so identifying the best one now can make life much easier for your family later. Need help getting started? We’re just a call away.
*Your term life insurance payout is based on the terms of your policy. Some causes of death, such as suicide, may exclude you from receiving a full payout.
At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.