Table of Contents
Picking a life insurance policy involves more than just selecting a coverage amount or price point. It requires thinking about your stage in life, your financial goals, and the level of flexibility or features you may want. Here's a step-by-step guide to help you explore your life insurance options.
Step 1: Estimate How Much Coverage to Consider
There’s no one-size-fits-all formula for determining how much life insurance you need, but a few general frameworks can help get you started:
- 10 to 15 times your annual income
- Enough to cover outstanding debts + years of income replacement
- Use an online calculator to personalize for your specific goals
Understand your family’s financial needs. Estimate Your Life Insurance Coverage Needs
You may want to consider whether your life insurance could provide financial support for dependents, cover mortgage payments, supplement Social Security benefits, or help with estate settlement costs. For specific questions about your benefits, consult the Social Security Administration or a legal/tax advisor.
When deciding your coverage needs, think about expenses like:
- Everyday living costs
- Future education or childcare
- Outstanding loans (such as car or student loans)
- Burial insurance or final medical bills
- Ongoing care for aging family members
Step 2: Understand the Types of Policies Available
There are a variety of life insurance options to choose from. The main types are term life insurance, whole life insurance, and universal life insurance. Here is a quick comparison table to help you understand the key differences between these 3 life insurance options.
| Feature | Term Life | Whole Life | Universal Life |
| Coverage Duration | Set term (10-30 years) | Lifetime | Lifetime |
| Premiums | Typically lower | Fixed and generally higher | Flexible (but not guaranteed to stay low) |
| Cash Value | None | Fixed growth | Varies with market/index |
| Flexibility | Low | Low | High |
| Complexity | Low | Medium | High |
Additional Life Insurance Options
Beyond the big three, there are other policy types worth exploring depending on your goals:
- Variable Life Insurance (VUL): Links cash value to investment subaccounts; returns vary with market performance
- Indexed Universal Life Insurance (IUL): Connects growth to a market index like the S&P 500, often with a floor and cap
- Guaranteed Issue Life Insurance: No health questions or medical examination, but may include waiting periods and lower death benefits
- Simplified Issue Life Insurance: Requires basic health information, no exam, and typically comes with higher premiums per dollar of coverage
- Burial Insurance or Final Expense Insurance: A small permanent policy designed to cover funeral, cremation, and related costs
- Group Life Insurance: Often offered through employers; provides limited coverage and usually terminates if you leave the job
Step 3: Factor in Your Life, Budget & Goals
This is where a life insurance decision can be deeply personal. Matching your policy to your life stage, financial duties, and long-term plans can help you pick coverage that feels meaningful and lasting, not just cheap.
Consider Your Stage of Life
Young & single
A term life insurance policy could help protect anyone financially dependent on you, such as a parent co-signer or a partner. It may also provide basic financial security or cover final expenses. Convertible term policies offer flexibility if your future needs change.
Married or raising a family
At this stage, life insurance often supports financial needs like housing, education, and daily costs. Permanent policies such as whole life or VUL policies may help provide long-term protection and build value over time.
Approaching retirement
Your focus may shift to leaving a legacy, covering estate taxes, or adding to income. Social Security alone may not cover future needs.2 Permanent life insurance can give ongoing protection and possible tax planning benefits.
Monthly Social Security Check
Clarify Your Coverage Purpose
Every policyholder has their own reason for getting coverage. Knowing yours can help you narrow the field.
- Income replacement: Could help your family maintain its standard of living
- Debt protection: May pay off mortgages, private loans, or credit card balances
- Estate planning: Could help preserve wealth for beneficiaries or cover final tax liabilities
- Business continuity: Some policies may help cover a key person or buy-sell agreement
- Liquidity planning: Permanent policies with cash value may help avoid selling cash savings or property during emergencies
Review Your Budget Realistically
Life insurance generally requires an ongoing commitment. Ask yourself:
- Are premium payments predictable and affordable with your current income?
- Would a flexible policy, like universal life, help you adjust payments later if needed?
- Could you risk lapsing the policy if your financial situation shifts?
- Could a premium grace period protect your coverage if you miss a payment?
If you're prioritizing low monthly cost, term life insurance may offer the most coverage per dollar. If you want longer-term value and possible investment earnings, cash value life insurance may help. Types include universal life, whole life, or variable life insurance. These can provide both protection and savings.
There must be enough cash value in the policy to cover monthly charges if a lower premium is paid than the amount selected at issue or if a premium payment is skipped. Additional premium payments may need to be made to keep the policy in force.
Think About Time Horizon
Not everyone wants or needs lifetime coverage. But for some, it's essential.
- Short-term needs: If you're covering kids or a mortgage for the next 20 years, term life insurance may be a focused, lower-cost option
- Lifelong needs: If you're caring for someone with long-term health or financial needs, or if you want to leave a lasting legacy, permanent life insurance may offer more security
Some term policies include a conversion feature, which lets you switch to permanent insurance. That could be helpful if your health changes or if your goals evolve later.
Conversions and increases in coverage are subject to underwriting based on health and other factors. Life insurance policy guarantees are subject to the timely payment of premiums.
Consider Health & Insurability
Various health factors play a major role in what coverage you're eligible for and how much it might cost.
- If you're in good health, you may qualify for higher coverage amounts at lower rates.
- If you have medical conditions, a guaranteed issue or simplified issue policy might be available without a medical examination, but these generally come with higher premiums and lower death benefits.
- Some policies include guaranteed insurability riders, which allow you to buy additional coverage later without new underwriting.
Also worth considering: policies with a disability rider may pause premium payments if you’re unable to work. This may help protect your policy even during difficult times.
Learn how various life insurance options can support your unique situation and life goals. Get a Free Life Insurance Quote
Step 4: Consider Customizing Your Policy with Riders
Once you've narrowed in on a policy, the next step is deciding how to personalize it. Many life insurance policies allow you to add riders, which are optional features designed to tailor your coverage.
Common riders include:
- Accelerated Death Benefit Rider: May let you access part of your benefit early in case of a terminal illness
- Waiver of Premium Rider: Waives premium payments if you become disabled
- Critical Illness Rider: Provides a benefit if you're diagnosed with a qualifying serious illness, helping cover expenses during treatment or recovery
- Long-Term Care Rider: Taps into the death benefit to pay for qualifying nursing or in-home care
- Accidental Death Benefit Rider: Increases payout if death occurs due to a qualifying accident
Riders typically come with an added cost and may not be available on every policy. You may want to speak with a licensed insurance professional to understand which riders are offered and how they work with your chosen coverage
The death benefit is always the primary benefit of any life insurance policy.
Step 5: Compare Life Insurance Companies
Once you've identified what type of policy and features you’re looking for, it's time to compare insurers. No two are exactly the same, so take a close look at:
- Financial strength ratings: From AM Best, Moody’s, or Standard & Poor’s
- Claims reputation: Look up consumer feedback or reports via the NAIC
- Customer service support: Consider accessibility and clarity of communication
- Policy documentation: Make sure the certificate of coverage clearly outlines terms, exclusions & benefits, and other policy details
Some insurers specialize in group life insurance, while others focus more on cash value life insurance or flexible universal life policies. You may want to review the fine print and compare quotes side-by-side before moving forward.
What to Expect During the Application Process
When you apply for term life, whole life, or other permanent life insurance, it usually starts with underwriting. Underwriting is how the insurer checks risk and sets your pricing and quotes.
Common Application Requirements
- Medical Questionnaire: Current health, prescriptions, family history
- Exam: May include labs, blood pressure, and weight checks
- Occupation & Income Review: Helps assess your financial profile
- Beneficiary Designation: Names who receives the death benefit
Reassessing Your Policy Over Time
As your life circumstances shift, so might your priorities and your coverage. Reviewing your policy regularly can help make sure it still fits your goals, family needs, and finances.
You may want to take a closer look at your coverage if any of the following events occur:
- A change in marital status, such as marriage or divorce, often impacts who you name as beneficiaries and the level of financial support your loved ones may need.
- If you take on big debt or pay off a major loan, you may want your policy to cover those debts.
- Changes in income or career, like a promotion or job change, may affect your budget for premiums.
- Health changes, like a new diagnosis or health improvement, can affect your insurability.
Even if your policy is active, understand the premium grace period and conditions needed for policy renewal or conversion.
Final Thoughts
Life insurance isn’t just about planning for the unexpected. It’s about making thoughtful decisions that reflect the people and priorities that matter most to you. Take the time to explore your options, ask questions, and read the fine print. If you're ready to dig deeper, speak with a professional to find coverage that aligns with your goals.
Help protect your future with life insurance. Get a Free Life Insurance Quote
Sources
- LIMRA. "LIMRA: U.S. Life Insurance New Premium Exceeds $3.9 Billion in the First Quarter 2025" https://www.acli.com/about-the-industry/life-insurers-fact-book/2024-life-insurers-fact-book
- Smart Asset. "Retirement Planning Mistakes" https://smartasset.com/retirement/retirement-planning-mistakes
- Social Security Administration. "Monthly Statistical Snapshot, June 2025" https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/2025-06.html
- Internal Revenue Service. "Life insurance & disability insurance proceeds." https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds
Footnotes
- Payment of Accelerated Death Benefits if not repaid will reduce the death benefit and affect other policy values.
- Receipt of Accelerated Death Benefit payments may adversely affect eligibility for Medicaid or other government benefits or entitlements. They may also be taxable. Consult your tax advisor.
- Loans will accrue interest, reduce the death benefit, and account value. If the policy is classified as a Modified Endowment Contract (MEC), withdrawals may be taxable and subject to a 10% penalty if taken before age 59 1/2.
