Are you ready for life insurance, and want to start the process yourself? We’ve devised this checklist so that you can identify all the steps to purchasing your whole life insurance, or convertible term insurance, with ease and confidence.
And while we intend for this list to be a “DIY Project,” we still believe it’s important to use a life insurance agent to make the official purchase. The reason is that online platforms (without an agent) are “non-participating.” This means that these policies don’t pay dividends. So if you want a participating whole life insurance policy with a mutual company, you’ll want an agent as an intermediary.
The benefit of DIY insurance, however, is that you can choose what you want and do your own research—then bring it to an agent of your choice.
Table of Contents
The 12 Steps of DIY Life Insurance
1. Find Your Human Life Value
Your Human Life Value (HLV) is the maximum amount of insurance a life insurance company will approve you for. This number is generally calculated by multiplying your net income by 20. You can also consider your HLV as your Gross Worth.
Set aside this number for later (we’ll get to it in step 6).
2. Find Your Spouse’s Human Life Value
If you are married, you’ll probably want some insurance on your spouse. Even more so if you have children. You’ll want to determine their number as well, to know what complete coverage would look like for you both.
If your spouse is not working, you can calculate their HLV as 50% of your HLV.
Set aside this number for later.
3. Determine Your Savings
Next, you’ll want to determine how much money you can allocate to savings each month. You can also determine your annual savings ability if you want to make annual premium payments.
The number you determine will contribute to your base premium as well as your paid-up additions (PUAs). You’ll want your first whole life insurance policy to insure the main income earner of the family.
A PUA is essentially extra money that you can put into your life insurance policy, so long as it’s under the MEC limit. The MEC limit is a number determined by your insurance company, based on your age, gender, and the face amount of your policy. A policy becomes a MEC (or Modified Endowment Contract) if you over-fund your policy, and the IRS will consider it a taxable asset.
4. Connect with Your Life Insurance Agent
Once you’ve determined your savings, you’ll want to inform your life insurance agent what that number is. At this time, you will also give them your date of birth, state of residence, and any known health issues you have.
5. Get an Illustration
With the information you give to us, or the agent of your choice, you’re ready for an illustration. If you’re seeking the kind of whole life insurance we love to advocate for, here’s how you’ll want to phrase the request to your agent:
“I’m looking for an illustration from a mutual life insurance company (or a mutual holding company) that creates maximum cash value and minimum death benefit using my savings contribution.” (The savings contribution being the number you determined in step 3.)
6. Ask About Term Insurance
Now, we’ll get to your HLV number. Chances are the money you have available to contribute to your savings will not fully cover your HLV. This is where term insurance comes in handy. Whole life insurance premiums are much higher because you’re contributing to your cash value. However, life insurance is also meant to protect your income—so having your full HLV in place is still a good idea.
Term insurance will bridge this gap, and make reaching your HLV possible. So, you’ll want to ask for a term insurance illustration that makes up the difference between your HLV and the death benefit of your whole life insurance illustration.
We recommend asking for convertible term insurance. This raises the premium just slightly but allows you to convert that insurance to whole life insurance over time (without needing to re-qualify).
7. Want to Add a Lump Sum?
If you want to add a lump sum to your insurance from the beginning, let us know! We may be able to add a term insurance rider, which can accept a lump sum. The insurance company will have a maximum limit, which we can help you determine.
8. Want a Second Policy?
If your spouse is earning income, you may also want two policies, split between the contribution number you determined in step three. Let your agent know if you’d like two smaller policies. You’ll want to provide us with the information from step 4, as it pertains to your spouse.
Then, we can then run the appropriate illustrations. You can also choose to do one whole life insurance policy and a blend of term insurance to cover the remaining HLV for you and your spouse. The illustrations we run will help you determine what works best for you and your family.
9. Go Through the Approval Process
Once you’re happy with your illustrations, you’ll want to go through the approval process. If you’re working with us, we can help you through the application, medical exam, and more. From start to finish, this process takes about 8 weeks, depending on your medical records.
10. Consider Insuring Children
You may not choose to insure your children right away, however, it’s important to note that you can insure them. Doing so will allow them to build cash value in a policy from a young age. You can use this cash value to teach them financial responsibility and help fund things they may want while they’re young. You can also transfer ownership of the policy to your children once they turn eighteen, and they can begin to pay their own premiums.
11. Remember: Life Insurance is Practical
As my husband, Todd Langford, of Truth Concepts, says, “There are no deals in the life insurance industry.” Everything is a trade-off between cost and risk. I personally believe in life insurance as an asset with certainty and flexibility, because of the contractual guarantees. Few other assets have such good odds and low risk—that’s why the costs are what they are.
12. Finalize Your Policy or Policies
The final step is to finalize your insurance by paying the premium amount you determined in step 3 (with any adjustments you may have made during the illustration and application process). The premiums you pay are going to contribute towards your cash value, yet you may not see it really take off until about the third year. As long as you are a good steward of your policy, you’ll start accumulating cash value in no time. So make those premium payments!
Remember: Universal life is not the same as whole life insurance. It does not have the same guarantees and is much riskier than whole life insurance (remember step 11).
How Can We Help?
Are you ready to secure your own life insurance? We would love to be the ones to help you through this journey, whether you DIY the process or would like additional guidance. Let us know how we can help you get started and automate your savings! Contact us here or email firstname.lastname@example.org to get started.