The basics

• 1). Calculate how much coverage you'll need. Determine how much your beneficiaries need to live on, and for how long. Losing a loved one is emotionally and financially difficult, and dependents may need a period during which they won't have to worry about money. While two years is an average cushion, some people may want to make sure their beneficiaries are taken care of until they finish college, while others want their loved ones to be set for life. Calculate all expenses for the covered period, including bigticket items (college, mortgages), as well as living expenses (clothes, food). Then subtract the amount of money you think your beneficiaries will make from salaries and investments (remember, adults may not be able to go back to work right away). By subtracting all their estimated expenses from established income, you'll get a basic idea of how much insurance coverage you need.
  
  
• 2). Analyze what type of coverage best meets your needs. Think of insurance in terms of decreasing protection as you get older. When you are younger and have kids and a mortgage, your family needs protection. As you get older, your kids have graduated and you likely have few or no payments left on your mortgage, so you need less protection.
  
  
• 3). Check the ratings. Insurers run the gamut from shaky upstarts to solid, household-name institutions. Most companies are rated for financial strength and claims-paying ability by independent rating agencies. Ratings from A.M. Best, Moody's, and Standard & Poor's are the most often cited.