Don't Have Life Insurance? Here Are the 5 First Steps to Take

Anyone without life insurance should read this ASAP.

Most people need life insurance. Those without a policy should consider taking some important steps as soon as possible in order to make sure their loved ones are not left unprotected and in dire financial straits if something goes wrong.

Here are five of those steps.

1. Determine if life insurance is needed

The first and most important step for anyone without life insurance is to determine if buying a policy is necessary. For most people, it is. It's important to have coverage if loved ones rely on your income or services.

For example, a person who cares for aging parents or minor children would need life insurance, as would someone who helps a spouse cover mortgage payments or childcare costs.

Those who expect to have others relying on them in the future should also buy life insurance, as should people whose family members would have a hard time paying burial expenses in the event of an untimely death.

2. Decide what kind of policy to buy

A term life insurance policy is the best option for most people. It offers coverage for a set period of time such as 30 years. Most people don't need coverage forever since they eventually stop having people rely on their services or income.

A whole life policy is an alternative. It remains in effect for life, and it also has an investment component and accrues a cash value. It's usually not the right option. It's much more expensive than a term life policy and provides a lower rate of return than many investment alternatives. Those who need coverage forever may want one though -- such as parents who will always need to provide for a disabled child.

3. Estimate the necessary death benefit

Anyone buying life insurance must decide how large of a policy they need. The amount the policy pays out is called the death benefit. For most people, the DIME formula is the best way to estimate the death benefit. DIME stands for debt; income; mortgage; education.

The life insurance policy, in other words, should pay a large enough death benefit to pay off all remaining debt and the mortgage on a family home; to provide for minor kids; and to replace the policyholder's income for as many years as it will be needed.

4. Get life insurance quotes

After deciding on the type and amount of coverage, it's time to start shopping around. Life insurers will give quotes online or through insurance agents to those who provide basic health information and details about their age. Getting several quotes is a good idea to make sure the most affordable coverage is purchased.

5. Apply for coverage

Finally, it's time to apply for coverage. A life insurance application requires detailed health history and often a medical exam to assess the risk of the policyholder dying while covered.

Most people can get some kind of life insurance. Even people with pre-existing conditions may have options such as guaranteed issue policies. But those who are in poor health may pay more or have limited choices when it comes to what coverage they can buy.

If you're currently without coverage, it's best to take these steps ASAP, because if a policy is needed but not purchased, loved ones could pay the price.