Assets In Life Insurance: Yours & Theirs
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.)
An analysis of your assets helps you to determine how much coverage you require. An analysis of an insurer's assets may help you to rule out any undesireable companies, enabling you to make good purchasing decisions. Having a financially strong insurer ensures that your death claims will be honored and, in the case of universal life insurance, increases the likelihood of more favorable interest rates.
Admittedly, accurately evaluating a company's financial strength is no easy task, even if you have access to their financial records. However, there are a number of nationally recognized ratings organizations which provide easy-to-interpret grades for the credit of any insurance company worth knowing. (Yes, the financial gurus have proven their own incompetence in even recent history, but it won't take you much time at all to consider the financial strength of the company in question.) If you're using the website of an independent agency to compare life among insurers, your agency may indicate the financial strength of each insurer at the time it quotes them. (The agency I work for shows A.M. Best ratings.)
by: Mark Manderson