The Challenge of Taking Out Life Insurance

Taking out life insurance sounds like it should be easy. Call a few companies, get price quotes, and go with the cheapest one. Then, you just have to fill out forms and schedule a health exam.

[See: "7 Killer Insurance Mistakes You're Probably Making."]

Well, it turns out not to be so straightforward, at least in my experience. First of all, my husband and I had to agree that we did, in fact, want to start paying for life insurance. With a baby on the way, it seemed like a good idea. But with the extra child-related costs that we were already anticipating, it was hard to justify spending extra money each month on something that has a low chance of paying off. After much discussion, we decided that to be responsible parents, we really did need life insurance, so we decided to go ahead and investigate our options.

First, I visited several companies' Web sites to get a sense of how much this insurance might set us back. I started with the big ones, including Allstate, Prudential, and Transamerica. I also used the comparison Web site www.intelliquote.com, which scans many companies at once. The monthly price quotes were all relatively similar, so we went with the lowest priced option. Since the insurance market is heavily regulated by states (and partially insured), I felt pretty safe with our choice.

[See: "When Insurers Go Bankrupt, Who Gets Paid?"]

The next step was scheduling a health exam. The insurer's examiner makes home visits, but since the blood and urine tests require four hours of fasting in advance, it wasn't easy to find a convenient time. We ended up going with 8 a.m. on a Saturday morning. The half-hour visit was relatively painless, and within a few weeks we received our test results, which confirmed that we are healthy and can receive the price quotes originally offered.

Like most people concerned about costs, we opted for term life insurance, which typically gives anywhere from 10 to 30 years of coverage. The other option is whole life insurance, which operates more as an estate planning tool and is much more expensive. A healthy 30-year-old taking out $500,000 of term life insurance can expect to pay around $500 a year or so, an amount that obviously depends on many other factors. Deciding how much life insurance to take out is also a tough call; some people have additional insurance through their work, so need only to supplement with private life insurance. Financial advisors typically recommend calculating how much it would cost to replace lost income as well as considering all of the costs you would want to cover in the event of your death.

[See: "From Pet to Marriage Insurance: Good Deals?"]

For us, the whole process took about three months. We finally signed the last forms months before we're expecting our daughter. Of course, we still need to get our wills signed and create an organized list of all of our financial accounts. Our path to becoming financially responsible parents seems to be filled with baby steps.