How not to get lost in the insurance maze

It’s not easy to buy insurance. In fact, it can be so confusing that people tend to just go with the flow and trust everything to their agent. That would be okay if your agent is always on the lookout for your interests. But sad to say not all agents were created equal. Some just want to meet their quota. Even those who are in the insurance business will not deny that. Having said that, I have met many insurance agents who are truly concerned with their clients and sell them what they need, not the products that they need to sell. Most of them have training in overall financial planning. Today’s personal finance article from MoneySense talks about “How to buy life insurance.” Here’s an excerpt:

1. Identify your needs If you are single and earning but have no financial dependents, then you may not really need life insurance because nobody will be “financially hurt” when you are gone. If you are married and family members are dependent on you, and if you also happen to be the sole earning member in the family, then you need life insurance. Your entire family is dependent on you for financial support and, in your absence, their lifestyle would be severely impaired. 2. Determine how much insurance you need The next step is to ascertain the amount of coverage. The concept of human life value (HLV) can help in deciding how much coverage you should opt for. The HLV takes factors like your annual income and expenses along with the inflation rate into consideration while calculating the value. 3. Identify which product to buy After having quantified the need for insurance, the next step is to finalize a plan that will accomplish your need. There are two kinds of insurance plans – term plans and savings-based plans. A term plan insures a high sum at a low cost. A term plan makes for a good fit in all individuals' portfolios, irrespective of their profile. Some people also look at life insurance as a savings instrument. Here, apart from insuring a person’s life for a certain amount, savings-based life insurance plans also give returns on maturity. This is unlike term plans, which act as a pure risk cover and do not give any returns on maturity. 4. Compare policies across companies Before zeroing in on an insurance plan from any company, you should compare policies across insurance companies. This will help you in evaluating which insurance plan is best suited to your needs. One way of doing this is by contacting the insurance agent and asking him for a comparative analysis of insurance plans. Another way is by visiting the websites of different companies and scouting for relevant information. 5. Select an insurance provider Having understood how much insurance you need, you then need to approach a life insurance provider. Individuals wanting to buy insurance should preferably opt for full-time life insurance agents. The agent should have a good track record in offering objective advice in the client's favor and not his own. This will stand you in good stead over the long run since life insurance needs call for evaluation every few years and the insurance agent will help you with the same over a period of time.