If you need life insurance you want to be damn sure the coverage you buy is solid and will be there when the time comes. But how do know if your company is strong or about to go belly up? This is especially important if you focus on getting inexpensive coverage. It’s nice to save a few shekels of course. But not if the company you buy your insurance from is a fly-by-night outfit that is undependable.
Not to worry. Here are several easy steps you can take to discover just how secure your insurance carrier is:
There are a variety of ratings companies that rate the credit worthiness of 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 policies with companies that are A rated or better. Also, look at the company’s rating outlook. That’s just as important as the current rating.
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 should 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 had a problem and needs to improve. I’d ask a lot of questions about any company that isn’t highly rated and stable.
Where do you get these ratings? Glad you asked. Anytime anyone pitches you life insurance, they are required to furnish these ratings to you. Also, you can ask the insurance company to send you their ratings pamphlet or you can visit any insurance company website. They all provide this information.
Keep in mind that there are various firms that rate insurance companies as I said before. A.M. Best, Standard & Poors, Fitch and Moody’s are the big players. The insurance carrier has to pay these firms in order to get rated so every company might not have all the ratings – but they should certainly have three ratings at the very least. If the company doesn’t have the scratch to pay for these audits, they might not have the dough to pay you when you have a claim either. Or, they may be hiding something and are only willing to publish favorable reports.
Insist on dealing only with companies with at least three ratings at a minimum. And while you’re at it, don’t be satisfied with the grade only – read the entire report. Each of the rating firms have their own standards and they spell out the problems or concerns in the report. And make sure you are looking at updated ratings. Pilgrims don’t need no insurance surprises. Am I right?
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.
I’m a big believer of letting the insurance companies compete for your business.That’s the best way to get the cheapest life insurance policy with the strongest issuer. Get a number of quotes and then compare them based on price and quality. If, for example, a much stronger company can provide the insurance for only a little bit more money than a weaker firm, I’d suggest you pay up for that extra sleep-at-night. For me, it’s well worth it anyway.
Having gone through this process, please understand that you aren’t done. Things change quickly in the financial world so 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.
And by the way, if your agent tells you it’s time to exchange your policy because the company is weak, make them prove it. Have them show you the facts and the reports before making a move.
Life insurance is the bedrock of your family’s financial security. Make sure the company you do business with merits your trust by doing a little research and making sure.
Is your life insurance carrier solid? How do you know?