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How to Pick a Life Insurance Policy

by Stephanie M. Davis

Overview

Selecting a life insurance policy involves deciding among a bewildering array of options. As of 2007, there were approximately 1000 life insurance companies operating in the United States. Life insurance can also be purchased in the workplace, through social organizations and on the Internet. To make the most informed decision, consumers should consider how much insurance they need, the type of insurance, the purpose of the insurance, and what they can afford to pay. Buying the right policy involves identifying the best resources and asking the right questions of the right people.

Step 1

Create a buying plan that reflects your insurance needs and wants. Typical issues to address include: the desired amount of coverage, the reason for buying the insurance, your health status, the type of policy (term or permanent), and the amount of money you can spend each month or year (the premium budget).
Step 2

Consult with people you trust and know-- including friends, financial advisers and attorneys. Ask them to recommend insurance agents and companies that they have dealt with personally. Discuss their buying experiences, including what they liked or perhaps learned in the process. Review your buying plan with them and ask if there are additional considerations to include or modifications to be made.
Step 3

Contact your State commissioner of insurance and request copies of any insurance buying guides they have available. Inquire about your State's "free look" rules. The free look gives the consumer the right to cancel an insurance policy that was purchased in error. The rules vary by state and are not offered by all states.
Step 4

Investigate the financial condition of the companies that have been recommended. Pay particular attention to their ratings and claims paying history. Consult your State commissioner of insurance and confirm that the companies are licensed to conduct business in your state.
Step 5

Select the most competitive companies you've identified through your search. Request an insurance proposal from each company, based on your buying plan. This contact often will involve a personal meeting with an agent of the company. As an alternative strategy, you can retain the services of a professional insurance broker. Brokers represent more than one insurance company and may be able to offer access to several companies at once.
Step 6

Verify that the agent or broker is licensed to sell insurance in your state. Determine how they are compensated (commission, fee, retainer, etc.) and ask for one or two references.

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Buying plan State insurance commissioner directory
Buying plan
State insurance commissioner directory
Always pay for your insurance policy with a check. Make the check payable to the company and not the agent or the broker. Once issued, store your policy in a safe place for future reference.
Always pay for your insurance policy with a check.
Make the check payable to the company and not the agent or the broker.
Once issued, store your policy in a safe place for future reference.