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ife insurance is a simple concept -- you buy a policy that pays to your beneficiary or beneficiaries when you die -- but the decisions of what kind life insurance to purchase, how much of a death benefit and how much you pay are extremely complex.

* Note. There are more than 2,000 companies selling life insurance in this country. Some are very good, financially solid companies; others are not so sound. A company’s financial strength is vitally important to you because, hopefully, no one is going to collect on your life insurance for a long time.

You want to make sure your life insurer will be around for the long haul. How do you do this? You can consult a seasoned insurance professional, which is probably your best bet, or you can look at how various independent organizations “rate” the life insurers you are considering. Ratings are like school grades, A+, A, A-, B+, etc. In general, it’s wise to stick with companies that are rated A or better by most rating organizations.

Many Purposes for Life Insurance

Life insurance is far more than just a decision of how much to buy. Depending on your financial situation, life insurance can be used for a variety of purposes, such as:

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hile it’s one thing to have insurance for specific risks, it’s quite another matter to have enough insurance. How much is enough? The answer is different for everybody. It depends on what you want to protect and how much risk you’re willing to assume yourself.

Let’s say you have a net worth of $1 million. (Congratulations, by the way.) That’s the total value of your various possessions: home(s), car(s), furniture, art, stock and bond holdings, mutual funds, etc. One million dollars is also how much you have to lose.

* Imagine this. Say that famous person you hit in the intersection sues you for loss of income, pain and suffering, etc. Basically, the most this person can get from you is . . . $1 million.

Let’s say your current auto insurance policy has a limit of liability that will pay a maximum of $100,000 to any one person involved in an accident with you. (That’s a pretty common limit, by the way, although not for people with seven-figure net worths.) If you’re sued for $1 million, your auto insurance will pay a maximum of $100,000, which leaves you holding the bag for $900,000.

It’s risky to be in business these days. Business owners face fierce competition, random economic swings and strict government regulations. Besides that, unexpected disasters can hit a potentially successful business. Take these examples:

• - Fire at a drycleaner. No insurance to pay for customer goods.
• - A roof collapse at a toy store one month before Christmas. No insurance to re-open.
• - Insurance on a fire-destroyed building. No insurance to cover pollution cleanup costs.

H

ow do you know if you have enough insurance? Sure, there are certain risks you’re willing to assume -- earthquake might be one, landslide another -- but how can you be sure that you’re not facing risks you don’t want to assume?

You talk to a professional, someone who understands risk and can assess your willingness to assume it. Someone who can tell you whether you have enough insurance, based on your aversion to risk, or too much.

You talk to an insurance agent, someone who understands what coverage is out there and what is right for you. You talk to an insurance agent who has expertise in the specific coverages you need and the risks you face.