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What life insurance does?
Life insurance is a policy that insures your life. It pays a certain amount when you die to people you have named (called beneficiaries).
Why would I purchase life insurance?
If you want to know that people who depend upon you (spouse, children, elderly parents, charity organizations) are provided financial support if you die, life insurance is a good idea.
Are there different kinds of life insurance?
Life insurance policies fall into two basic groups: term or permanent.
What is term life insurance?
Term life insurance is the simplest, least expensive, and most common life insurance product.
The way it works is that an insurance company agrees to insure your life against death for a specific term. The “term” is the period of time that the company agrees to insure you, say 10, 20, or 30 years.
Let’s take an example; say you have a $250,000 20-Year Term policy costing $200 per year.
What that means is that the company has agreed to cover your life for $250,000 as long as you pay the bill. If you pass away, the company will pay $250,000 to the person or people you selected. They are called your beneficiary or beneficiaries.
The 20-Year Term means that the company has committed to covering you for a 20 year period as long as you keep paying.
The $200 per year means that that’s what the policy will cost you for each of those 20 years. Even if your health changes, the cost will be the same.
(Note: Some less common term policies do change in cost.)
What happens when my life insurance term ends?
In most cases, you’ll need to decide whether to reapply for more insurance near the end of the term. It will be more expensive because you’ll be 20 years older.
Also, your medical circumstances may have changed, and there’s a chance that you may be ineligible for life insurance depending on your health. (This is one of the reasons people select a permanent life insurance product.)
What is permanent life insurance?
Permanent life insurance is designed to cover your life to the end of your days. While term insurance covers you for a set period of, say, 20 years, the goal of permanent life insurance is to cover your full life.
The structure of permanent policies can vary considerable. There are more traditional whole life policies and all sorts of varieties of universal life (UL) policies. UL policies are more flexible but can be tricky to understand.
Permanent policies usually offer value and some benefits while you’re alive.
For instance, you might access some of the funds for a project (that roof!) or emergency. Or you might get a provision that allows the policy to pay out for long-term care expenses. Or you can use the policy to build a long-term asset for your beneficiaries, an asset that has a guaranteed value whenever you might pass away.
It is important to know that permanent life insurance products require good attention and research because they require significantly higher financial commitment than term insurance.
The Application Process:
How much time does it take to get life insurance?
It’s easy to delay getting life insurance because you’re concerned about the process. But don’t let the time discourage you.
From start to finish, you’re typically looking at a total time commitment of 1 to 3 hours spread across two to ten weeks. In other words, 1 to 3 hours to select a policy that may very well cover you for 20 or 30 years.
That time includes everything from an initial discussion to think about what you’d like to apply for to the application, the underwriting, and the final decision of how much insurance you’d like at the end.
You may be able to put the policy into force right away, but you’ll likely still need to go through the application process for the final determination of what the company is willing to offer you for the long run.
What’s involved in getting life insurance?
Here’s what’s involved, pretty much anywhere you go.
First is simply deciding how much you think you’d like and to submit an application.
This is where a good agent can be especially helpful. Yes, there are a variety of online life insurance calculators available, but the reality is that many of the calculators make assumptions about you, about what you want, about the structure of your family, or about your life.
Second is the full application, which usually involves a phone interview (30-45 minutes).
In the interview, a person will gather more information from you and permission to seek additional information. For instance, underwriters will usually check your motor vehicle record, or put out a request to your doctor for medical records if they need further information to develop the rate.
A paramedical exam often is required (30-45 minutes).
Companies often require this depending on the policy amount, your age, and medical history.
The company pays for a trained paramedic to visit you at your home or your office when convenient for you. The paramedic will typically take height, weight, urine and blood samples, and also blood pressure as well. (You’ll get full access to all the results.)
Now underwriters go to work (0 minutes for you).
At this point you pretty much wait for the company to finish collecting relevant information. A good insurance agent will watch to keep the policy moving through the process.
Sometimes medical records can take well-over a month depending on the medical facility. When all the information has been gathered, an underwriter reviews your application to determine your eligibility, final rating and premium.
Third, your decision (10-30 minutes).
Now that you know the final price, you can decide exactly how much you would like to purchase. The company will ask for a few signatures and payment, and your policy will go into force.
If you don’t want the policy, you can reject the entire policy at no cost to you.
Is there a stream-lined process for life insurance?
Sometimes you’ll see advertisements for a stream-lined process that promises to avoid the hassles and in-depth questions traditionally associated with getting life insurance.
While it’s certainly true that underwriting has become increasingly sophisticated in the last 20 years, in our view, the reality is that clients will on average end up paying a bit more for such stream-lining, especially for amounts over $250,000.
Why is that? Well, one basic reason is that the less an underwriter knows about a risk, the more the insurance company will typically charge as a way of compensating for what they don’t know.
Also, the life insurance provider may need to compensate for the real possibility that their stream-lined process will attract a higher-risk group of applicants.
For example, say one particular life insurance company looks more favorably than others on the use of cigars or doesn’t ask about smoking.
After a while, word spreads among the cigar lovers of Hillsboro and they increasingly apply to that company. In anticipation of more cigar-loving applications, life insurance companies will adjust their rates in advance to try to account for the extra risk.
In sum, paying a bit more for a stream-lined process may be worth it to you, but if, like most, you’re concerned about getting coverage for 10 years or more (with a bill!), why not take the bit of extra time to do a more complete application?
Other Guides & Helps
- The State of Oregon has put together a consumer guide here at Help with Life Insurance.
- At a national level, the National Association of Insurance Commissioners (NAIC) also put together a Consumer Guide on Life Insurance.
- Learn more About Us (actual people!), our Sensible Approach, or our Carriers.
To get quotes, go to our Get Life Quotes page.