Importance to purchase a life insurance

You may already realize that life insurance is important when it comes to protecting your spouse, children, or other people who depend on you such as a parent or disabled relative. But did you know that life insurance can also be a tool to help you meet other financial goals? If you own a business or have a sizeable estate, you may want to consider life insurance as part of your financial strategy.

Everyone's life insurance needs are different. A common belief is that you need 10 times your yearly salary, but there are many other things to consider. How many people depend on you for support? What kind of lifestyle do you want to provide for your family?

Would your working spouse have to stop working to raise the children if something happened to you? You should also take into account any outstanding debts, other sources of income, big one-time expenses like college, and a host of other things.

If you already own life insurance, you've taken an important first step. But it's a good idea to review your needs every few years, because as your life changes, so should your life insurance choices. If you've recently married or divorced, had a child, begun to care for a parent, or bought a new home, it's wise to reassess your situation. The larger the demands on your finances—that is, the more people who look to you for support—the more life insurance you may need.

Several large U.S. insurance rating services assign letter grades to insurance companies based on the company's financial strength and claims paying ability. These major rating services include A.M. Best; Duff & Phelps; Moody's; Standard & Poor's; and Weiss. You can find their rating information on the Internet or get it from your prospective insurance company.

According to some experts, if you're buying a permanent life policy, term or an annuity, the company should be rated by at least three of the five rating services and have one of the top three ratings by at least two of those services. This may sound extreme, but keep in mind that life insurance is not primarily an investment--you're buying it for the death benefit--so you want to feel secure that the company will be in business and able to pay a claim when you or your heirs need it.