Breaking Life Insurance Down   by Lily Smith

in Insurance / Life Annuities    (submitted 2011-10-16)

Although life insurance companies make it easier for the client, the process of deciding on an insurance policy and an insurance company for that matter, is not exactly a simple one for a first time life insurance purchaser. The truth is, there are too many options in the market today, and it may get confusing to choose one type of plan from hundreds of different options. And then, when you have finally decided on a type of plan, you will have to decide on a coverage rate, and premium rate, and then decide on your payment scheme of choice.

This process may obviously become quite overwhelming for someone who does not know a thing about insurance. Although insurance agents may be there to guide you on the decision you are about to make, the truth is, guidance can only go so far. Add to that the problems of deciphering whether or not the insurance agent is simply swaying to make a decision that will give him/her a larger commission. Thus, a lot of people end up buying cheap insurance which ultimately, does not provide much for their beneficiaries.

The truth is, the process can be broken down into three simple steps. The first step is deciding on a company to trust. Find out which companies offer the best value for the amount you pay, and do not opt for the company that provides cheap insurance. You must find out which delivers the largest payout with the least expense to you. Also, you must find out how stable the company is. After all, when the company is non-existent by the time your beneficiaries will need the financial aid, then your payments will have been paid in vain.

Second, you must decide on how much coverage your beneficiaries will need. Decide how much you would want to give them and how much they would actually need. Most people compute this by finding out how much funeral expenses may add up to, and then multiply this amount by two or three. And then they add their current annual income and then multiply that value three or four times. The sum of those amounts plus some extra amount is the ideal coverage because it will not only help pay your debts and funeral expenses, but will also help them survive for at least a year. This will also give them sufficient time to look for a proper source of income to supplement the income that was lost with your passing.

Third, decide on how much you can actually pay. Once you have decided on the amount of the payout you think your beneficiaries will receive, the insurance company will decide how much you need to pay them. Decide whether you can afford this or not, and then adjust accordingly.

About the Author

Lily Smith is the author of this article about life insurance comparisons in Australia. Read more about it at http://www.miplan.com.au