Evaluate Assets Before Buying Life Insurance

We have a lot of practice at making purchase decisions. We may get so good at the purchases that we are accustomed to that we have extra difficulty when presented with an unfamiliar purchase, like shopping for life insurance. Where do I start? How do I know I’m not getting ripped off? Take a moment here to learn how assets (both yours and those of your insurer) relate to a good life insurance purchase, and you’ll be a more effective shopper.

The first question you should work on answering when shopping for life insurance is, ”What kind best suits me/my needs?” A close second is, ”How much do I need?” In order to answer this second question effectively, you had better evaluate the assets you’re already holding. How much coverage you need is a function of the financial needs of your survivors, but part of their financial needs may already be satisfied by existing assets. If you calculate that your spouse and children need a million dollars to get them through the next fifteen years but you already have a quarter-million-dollar company and $100,000 in savings, then you probably don’t really need a million dollars in life insurance coverage. (Though, incidentally, you should plan ahead for who will buy your business upon your death so that your spouse gets the cash as quickly as possible.)

(As a side note, if the question of what kind of insurance to get is really tripping you up and you have no idea where to start, I recommend speaking with an agent. If you’re mistrustful of agents, I recommend learning about ordinary, old term life insurance. It’s the product of choice for most shoppers, and it’s the cheapest type of life insurance.)

Sure, for many shoppers, it’s intuitive that an evaluation of one’s own assets is essential to smart life insurance shopping. However, an understanding of the insurer’s assets is not out order either. A good financial strength rating is a clue that the insurer will not go belly up (or take a bailout from the taxpayers) when the next economic bump in the road comes along.

Okay, the first question you should be asking now is, ”Even if I could find that information, how would I know what to do with it?” Yes, it’s true that most people outside the financial industry (and about half the people within it) don’t honestly know what a good asset portfolio looks like. However, the nationally recognized credit rating organizations (e.g. Standard and Poor, Fitch, A.M. Best) have a fair-to-decent sense of the matter (if anyone does), and it takes but little time to learn ascertain that a particular insurance carrier has an A+ financial strength rating. If you’re comparing life insurance quotes through an independent agency, the agency may supply said financial ratings along with the quote.

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