How to Buy Life Insurance: The 5-Step Walkthrough

Here's a number that should wake you up: 39% of consumers say they intend to buy life insurance within the next year, according to the 2023 Insurance Barometer Study (III). That's a record high. But intention isn't the same as action, and the reason most people stall is simple: they don't know where to start. This guide is for you if you're an adult with people who depend on your income—whether that's kids, a spouse, or even aging parents—and you haven't bought life insurance yet, or you're not sure if you have the right kind.

I'm going to walk you through the process in five concrete steps. No jargon, no fluff. By the end, you'll know exactly what to buy, how much, and where to get it.

Step 1: Decide If You Even Need It

Not everyone needs life insurance. If you're single with no dependents and no one co-signed your debts, you might be fine without it. But if someone would suffer financially when you die—like your kids needing childcare or your spouse covering the mortgage—then you need coverage. The fact is, parents of minor children are more likely to own life insurance than the general population: 59% versus 52% (III). That gap shows that parents get it. But it also means over 40% of parents are still uninsured or underinsured.

Here's a blunt rule: if someone depends on your income, you need life insurance. No excuses.

Step 2: Choose Term Over Whole Life (Usually)

Now, the big decision: term or whole life? I'm going to make a bold recommendation—buy term life insurance. Here's why. Term life covers you for a specific period, like 20 years, and it's generally much cheaper than whole life, which covers you for your entire life and builds cash value (Investopedia). Whole life premiums are typically higher, and that cash value component is often a poor investment compared to other options (Policygenius).

Term life comes in two basic varieties: level term and decreasing term. Level term pays the same death benefit whenever you die during the term, while decreasing term's payout shrinks over time, like with credit life insurance that pays off a loan balance (III). For most people, level term is the way to go.

What term length? The most popular is 20 years (III). That's a sweet spot: it covers you through your kids' college years and into your mortgage payoff. You can also get 10, 15, 25, or 30 years, or a term that goes to a specific age like 65 (III). Pick a term that matches your biggest financial obligations.

Step 3: Calculate How Much Coverage You Need

Here's where people often get stuck. The common rule of thumb is to buy about 10 times your annual income (Investopedia). That's a starting point, but let's make it concrete. Say you earn $60,000 a year. Ten times that is $600,000. That amount, invested conservatively, could replace your income for a decade or more. But you also need to factor in debts, future college costs, and your spouse's earning potential.

Let's run a quick scenario: You're 35, married, with two kids, and you earn $75,000. A 20-year term policy with $750,000 in coverage might cost you around $40 a month for a healthy non-smoker. That's less than a cable bill. For that, your family gets a tax-free payout that can pay off the mortgage, fund college, and provide a bridge to financial stability.

Don't overcomplicate it. Start with 10 times income, then adjust based on your specific debts and goals.

Step 4: Get Quotes and Compare (Don't Buy from the First Salesperson)

Once you know the amount and term, shop around. You can get quotes online in minutes. Compare at least three insurers. Look at the price, but also the company's financial strength and customer service reputation. You want an insurer that will be around when your beneficiaries need to file a claim.

One important feature to consider: convertibility. Convertible term insurance allows you to change your term policy into a permanent one later without proving insurability again (III). That's a valuable option if your health changes or your needs evolve. I'd recommend getting a convertible policy, even if you don't plan to use it. It's like an insurance policy on your insurance.

What can go wrong? Here's a warning: don't lie on your application. Insurers will check your medical records, and if you hide a health condition or a risky hobby, they can deny the claim later. Be honest, and you'll avoid a nasty surprise for your family.

Step 5: Buy the Policy and Review It Regularly

After you've chosen a policy, read the fine print before you sign. Know the exclusions, the premium schedule, and the grace period for missed payments. Then, set a reminder to review your coverage every few years or after major life events—marriage, birth of a child, a new mortgage. Your needs will change, and your policy should too.

Quick tip: If you're young and healthy, lock in a level term policy now. Premiums increase with age and health issues, so waiting costs you money.

Bottom line: The single best move you can make is to buy a 20-year level term life insurance policy with coverage equal to about 10 times your annual income. Do it this week. It's cheap, it's easy, and it's one of the most responsible things you can do for the people you love.

Sources

• III - Term Life Insurance: https://www.iii.org/article/what-are-the-different-types-of-term-life-insurance-policies
• III - Life Insurance Facts & Statistics: https://www.iii.org/fact-statistic/facts-statistics-life-insurance
• Investopedia - Insurance: https://www.investopedia.com/terms/i/insurance.asp
• Policygenius - Whole Life Insurance: https://www.policygenius.com/life-insurance/whole-life-insurance/