Questions to Ask When Buying Life Insurance

Policy scope and type

There’s no such thing as a one-size-fits-all life insurance policy. To figure out the coverage that’s best for you, ask yourself the following questions: 

How much coverage do I need?

First, consider how much financial support your family would need if you died. Consider your income, outstanding debt, the cost of final expenses, and the age and needs of your dependents. For example, if you have young children, you may require a policy with a larger death benefit than if your kids are already through college. 

Online calculators let you estimate how much coverage you need. Absent a detailed calculation, one general guideline is to purchase a policy with a death benefit that is 10 to 15 times your income. 

What's the difference between term and whole policies?

There are two main types of life insurance: term and whole life. 

• Term: Term life insurance provides coverage for a specific period, such as 10, 20 or 30 years. The policy only pays the death benefit to your beneficiary if you pass away while the policy is in place. Term life policies are best for those who want relatively inexpensive coverage that provides for their loved ones in case of your death. 
• Whole: Whole life policies are a type of permanent life insurance, meaning they stay in place as long as you keep up with the premiums. While whole life insurance policies do include a death benefit payout, they differ from term life coverage in that they can also build a cash value over time. Some people opt to use the cash-value portion as part of their long-term investment strategy. Whole life policies are typically more expensive than term coverage. 

Features to compare across policies

Whatever the type, life insurance policies vary in features and options:

How will the death benefit be received?

Obviously, you can choose among a range of amounts for the sum your beneficiaries will receive upon your death. With most life insurance policies, that death benefit is paid as a lump sum. But, some policies offer an annuity payment in which life insurance proceeds are paid out in installments. Which option is better depends on your family's needs and financial planning preferences. 

Is there a cash value? 

Term life policies only have a death benefit; they don't have cash value. By contrast, whole life policies can build a cash value over time. You can tap into that value to pay your premiums, take out loans or withdraw cash.

It’s possible, though not with exactitude, to predict what a policy’s cash value might be.  Insurance companies do provide illustrations that show potential cash value growth over time, based on assumptions about interest rates and other factors. However, these are just projections, and the actual cash value may vary due to market conditions and other details about the policy.

What exclusions or limitations are there?

With most policies, there is a period of contestability. As a rule, insurers can deny a claim submitted within two years of its effective date if the policyholder misrepresented their information on their application. Often, claims resulting from death by suicide are also denied during this period. And, some policies – at any time – exclude payouts related to death during high-risk activities, such as sky-diving. 

Understanding these details up front ensures a more streamlined process if a claim ever needs to be submitted.

Policy costs and company strength

Your policy type and death benefit amount are only some of the decisions you have to make. You also have to consider the cost and the reliability of your insurance company. 

What are the life insurance premiums?

Be sure to choose a policy and death benefit amount that gives you premium payments that can comfortably fit within your budget. It’s worth shopping around. Premiums for comparable policies can vary between companies, due to differences in underwriting practices and risk assessment, among other factors.

How stable is the insurance company?

You want the certainty that the life insurance company you select will be around for decades to come. A good way to evaluate a company's financial stability is to look up the insurer with AM Best, a credit rating agency focused on insurance companies. Most major companies have strong ratings. If an insurer were to fail – a rare event – state regulators work in various ways to ensure policyholders are made whole.

Other considerations before you buy

Before submitting your application, consider the underwriting process, in which your qualifications for the policy are evaluated. 

How can you apply?

Some life insurance companies continue to use dedicated agents through which you obtain their policies. However, you may be able to apply through independent agents or brokers – either online or in person – that sell the products of many insurers. With other companies like Amica, you apply directly to the insurer, often through online applications or phone or chat services.

The agent and the insurance company will review your health care records and require you to complete a questionnaire about your health. You then proceed to the next step. 

Is a medical exam required?

Typically, many life insurance companies require you to undergo a medical exam. After the exam, the insurance company will use the results to make their underwriting decisions. The entire process can take days to weeks to complete. 

Some insurance companies offer a simplified or accelerated process that allows you to qualify for coverage more quickly, and without a medical exam. (Keep in mind that such no-exam coverage could be more expensive, due to greater uncertainty about your health.) 

Can you adjust or upgrade your policy later?

Some policies allow enhanced protection through what are known as policy endorsements or riders. These optional add-ons give you additional coverage or higher limits. 

For example, some policies offer terminal illness riders that allow you to access a portion of your death benefit if you're diagnosed with a terminal illness. There are some policies that also allow you to adjust your coverage over time by changing your policy. For example, you might be able to convert a term life policy to whole life coverage.