How to Check on the Security of Your Life Insurance Company

If you own life insurance, you owe it to yourself to make sure the security of that life insurance company is good. What good is buying a big policy if the company is rubbish?  Here’s how to make sure your insurance company has good security:

1. Ratings

Credit card companies rate you. They put a ton of data into a computer and come up with a credit score. If you come out with a bad credit score, it doesn’t mean you’re going to rip someone off. And if you have a good credit score, it doesn’t mean you’re going to be an angel. It just means that you are likely to do certain things like pay your bills. Ratings companies do the same thing with insurance companies. The ratings aren’t guarantees that your insurance company is going to remain solvent, but it’s a good place to start looking.

The ratings start at A++ (depending on which ratings service you look at) and go down to F. I recommend only buying companies that are A rated or better. Also, look at the company’s rating outlook. This will tell you, in a general way, which direction the company is going in. Companies are rated stable, positive or negative. A negative outlook means the company is going downhill. Obviously you’d avoid such firms. A stable company isn’t projected to have a change in the foreseeable future. If the company is already strong, that’s a good thing. If the outlook is positive, it means the financial strength is likely to improve. But that presupposes that the company has some need to improve. I’d ask a lot of questions about any company that isn’t highly rated and stable.

2. Financial Statements

Only buy insurance from companies that are publicly traded. That way, you can get all kinds of information about the management and financials. Go to Yahoo! Finance and do some digging. Also, make sure to get the company’s financial statements. If you know what you are looking for you can get a lot of information about the security of the company just by reading the shareholder’s letter.

You can also check out the Standard & Poor’s guide that rates the financial strength of publicly traded companies. The best S&P score is AAA.

3. Shop

I’m a big believer of letting agents do the work for you. Talk to at least three insurance agents and let them tell you why one company is stronger than the next. Of course, while you’re at it, do your best to get the cheapest life insurance policy.   Let them fight between themselves. It’s the quickest way there is to get an education and to discover the truth.

Having gone through this process, please understand that you aren’t done. Because things change so quickly in the financial world, you must constantly monitor the strength of your insurance company. Set up a reminder in your calendar to go through this process every year, and consider exchanging your policy if your existing insurance provider starts to show signs of weakness.