Last December, my wife and I welcomed our second child, Elliot, into the world. As parents, we are ecstatic but weary. As a no-longer only child, big sister Molly remains skeptical.
They say that having two children is more than twice the work of one, but I think that having the first – going from carefree and childless to a responsible parent – is the more difficult transition.
After Molly’s birth, for example, we mourned the loss of free Friday nights, leisurely dinners out, and snoozing past dawn. This time around, we’re used to all that. Now we just have to learn to take care of a toddler while cradling a newborn (and vice versa).
Financially, when Molly was born we adjusted our budgets to include diapers, day care, and…life insurance! This time around we’ll just have to tweak the line items.
Life insurance is the critical component of financial security that nobody wants to handle. Life insurance is confusing. Life insurance is boring. Life insurance is depressing. And let’s not forget the little tickle in the back of your mind that wonders if your spouse will kill you for the payout – the result, no doubt, of watching one too many episodes of Dateline.
But as soon as somebody relies on you for financial support (perhaps a spouse, but definitely a child), you should have life insurance.
My experience buying life insurance
Just after Molly was born, I bought my first life insurance policy. Later that year, Lauren bought one, too. Here, I’ll share with you what it was like and what you can expect if you want to buy life insurance online or through an agent.
Before we get started, there are many different types of life insurance, but for 90 percent of you the only one I recommend is term life insurance. It’s the cheapest and most straightforward kind of life insurance. Term life insurance works just like other types of insurance — you pay an annual premium that’s fixed for a set number of years and, in the event you die, the insurer pays out a benefit. Other kinds, such as whole life, double as investments that let you keep and borrow against your premiums. These whole life policies sound attractive but are actually more costly for most people.
How to buy term life insurance
If you work with an independent insurance agent you trust, he or she may be your first stop to discuss life insurance, and that’s fine. Just know that your agent may present you with different types of life insurance and the choices may be overwhelming. I found it was easier to ascertain that I wanted level term insurance first before going shopping.
As you Google around, you’ll likely be overwhelmed with ads to buy life insurance online or get life insurance quotes (they’re probably even on this site now). And these sites are a fine place to start, but you should understand a few things:
- You can’t really buy life insurance online. The process involves a ton of questions, paperwork and, in most cases, someone coming to your home to give you a brief medical exam.
- Better sites will have single agents that you can work with directly, but some sites will simply share your contact info with dozens of agents, meaning you’ll get a ton-o-spam. Be prepared for that.
- The price quotes you get online in seconds are rough estimates at best.
So if you go to one of these life insurance quote Websites, here’s what to expect:
You’ll complete a brief form about you: Gender, age, weight, and whether you smoke (smoking is the biggest factor in pricing life insurance. Prepare to pay double if you smoke.) Most sites will require an email address and phone number before spitting back some quotes.
These quotes will be based on how much insurance you want and the term (how long you can be covered for the same premium). Commons terms are 10, 20 and 30 years. How much life insurance you need is a complicated question that this post can help you figure out.
You may be surprised to see a wide range of prices from different insurers. But without a more detailed application, most of these numbers are just guesses. Insurance companies employ actuaries who do nothing but crunch numbers to determine how to price insurance.
On a high level, insurance policies are divided into classes with ambiguous names like preferred, super-preferred, standard, or substandard. The insurance industry uses these broad groups to classify customers by risk. For example, if you are perfectly healthy, have a low body mass index (BMI), and do not have other risk factors (like smoking, dangerous activities, or a lousy driving record), you may meet the super-preferred class. By contrast, somebody who is overweight and has high blood pressure may only classify for the standard class and will pay much more for the same insurance.
Although life insurance classes can provide broad guidelines of what you can expect to pay, every insurer works differently. For example, let’s say you have a hobby that insurance companies consider high risk – like flying a plane or rock climbing. Some insurance companies may place you in a lower class and charge you more for these “high-risk” activities. Another insurance company may insure you in a higher class, but place exclusions on your policy meaning you won’t receive a benefit if you die as a result of those activities.
This is the first reason why shopping around for life insurance is so important and why online quotes are just the beginning. The second reason is the medical exam.
An insurance agent will ask you some more detailed questions about your health and lifestyle to hone in on the company that will offer you the best rate. At this point, he or she will give you a quote that will be accurate pending the results of your medical exam.
Most life insurance policies require a medical exam. Some don’t, but they inevitably charge much more than you need to pay because they’re taking the risk that you have a medical condition and could die prematurely.
Life insurance medical exams sound like a pain, but the reality is they try to make them as easy as possible for you. The examiners, called paramedical professionals, will call you to set up an appointment at your convenience – they’ll come to your office during the day or your home very early in the morning. (Mine came to my house before 7 a.m.!)
The examiner is trained to get a thorough medical history, take your blood pressure, and draw a blood sample that will be sent to a lab to test for cholesterol and glucose levels; tobacco and drug use; and diseases like aids. These results will be shared with you by mail.
In life insurance applications, honesty is paramount: don’t be surprised if you must answer the same question about your medical history or tobacco use five times, but always answer honestly. Insurance companies share information, so misrepresenting information might not just get you denied from one carrier, but banned from many. Worse, it could give the insurer legal grounds to deny your family’s claim in the event you die.
The insurance underwriter’s job is to take all the information from your application and medical exam and decide whether to you insure you and how much to charge. This takes many weeks. You’ll want to ask your agent whether the carrier binds any life insurance upon receipt of the application. For example, when you submit your application and a check for your first premium, many carriers will insure you for something, although not the full amount you’re requesting, pending completion of the underwriting process.
When your policy is approved, it is placed in force and you will receive notification, along with a full copy of the policy. You should make a copy of this policy, place each in different safekeeping spots, and notify your spouse where they are. Finally, you can relax knowing that one of the most important pieces a solid financial plan is in place for you and your family.
Do you have questions about applying for life insurance online or otherwise? Share your questions in the comments and we will try to answer them for you.