Evaluate your needs before purchasing life insurance

Feb 08, 2012

Consumers should evaluate their needs prior to selecting a life insurance policy.

Selecting a life insurance provider and plan is a very important process that should be completed after carefully assessing all the available options and benefits. However, consumers should wait to look at life insurance financial products until after they have determined the financial needs of their beneficiaries.

In an interview with Insure.com, Damon Bates, vice president of Massachusetts Mutual Life Insurance Company, said most consumers look at life insurance products before they understand the needs of their beneficiaries, which is a backwards approach. Rather, Bates recommends a needs assessment should be completed and then consumers can decide if they want term life insurance, permanent life insurance or a combination.

"You really need to figure out how much life insurance you want and then think about which product, in that distinct order," Bates told the source.

The first step of a needs analysis is determining current and future expenses of the beneficiaries. Curt Londquist, a financial consultant at Allstate Financial, said consumers should be aware of immediate, ongoing and future expenses to determine what coverage is needed. For example, an immediate expense could be medical bills or funerals costs, while an ongoing expense could be a mortgage or outstanding debt. A future expense could be sending a child to college.

Larry Ginsburg of Ginsburg Financial Advisors told the source that another important thing to consider is how much the death benefit from the life insurance policy will likely earn if it is invested. Consumers should be honest about their finances in order to pick out the best policy for their needs.

Many insurance providers are making efforts to find out what drives consumer behavior when purchasing life insurance and other financial products, so they can better serve their clientele. Lincoln Financial Group recently formed a research team to gain deeper insight into consumer decision making as it relates to their financial future.

The insight team is capturing quantitative and qualitative information about consumers that can help the insurance provider design products and distribution strategies more efficiently to its consumers looking for annuities, life insurance, group protection and retirement planning services.

Emily Pachuta, head of the insight group, said other industry studies and reports have focused on why consumers do not prefer certain products or solutions. This research effort is working on discovering why consumers select specific products or services.

"Basically, 90 percent of decision making is irrational and subconscious, so a deeper understanding of decision making drivers will help us, as well as financial advisers, better understand the actions that will improve one's financial life," Pachuta said.

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