How Do I Choose a Life Insurance Company?

Choosing an insurance company is just as important as choosing your life insurance coverage.  Most people purchase life insurance because they want to make sure their loved ones remain financially secure after they die and that is why it is critical that the life insurance company honors a claim when you die. Because you won’t be the person handling the claim, you want the peace of mind to know that your financial objectives will be met and the Life Insurance Company will honor its obligations.

With hundreds of life insurance companies in the marketplace today, how can you be confident that the company you choose will pay your claim?  Is one company really better than the other?

Because it can be challenging to compare insurance companies, we have compiled a list of questions you should answer before purchasing a life insurance policy.  Even if you already have a policy in force, this exercise can be helpful.  Consider discussing these questions with your insurance agent or broker.

Can I be confident the insurance company will pay my death claim?  What is the financial solvency of the insurance company?  How do I review each insurance company?

All of these questions can be answered by turning to rating agencies.  Standard & Poor’s, A.M. Best, Fitch and Moody’s are rating agencies that review the accounting statements of each life insurance company. Based on these reviews, they give an opinion on the overall creditworthiness of the company and assign letter grades to reflect their findings. Below are links to each rating agency so you can research the life insurance company you are considering purchasing a policy from. The ratings of each company can help you better understand the financial health of the insurance company and provide a financial “snapshot” of the company.  Consider selecting life insurance companies who have “Strong” ratings and avoid those who are rated as “Weak.”.

Four rating agencies:

  1. A.M. Best
  2. Fitch
  3. Moody’s
  4. Standard & Poor’s

Does the life insurance company have an excellent service and a positive claims history?

Since you put your trust in the insurance company to deliver on their commitments in your life insurance policy, consider researching to learn if complaints have been filed against the company as a result of poor service or claims dissatisfaction.  Your state department of insurance will have information about consumer complaints and claims history. An insurance agent or broker will have this information and can review it with you as well.

Should I choose a company based solely on price?

Not necessarily. The least expensive policy isn’t always the best option. In addition to the above recommended research, your insurance agent or broker can help you to review cost, as well as policy features and benefits from reputable insurance companies.

How long has the insurance company been in business?

Many insurance companies have a long and successful history. Some have been in business for over 100 years.  Consider consulting with your insurance agent or broker who can help you research the details about the insurance company you are interested in and its history.  This, in combination with a solid understanding of the financial condition of the company, will provide a good start in helping you select a life insurance company that will give you the peace of mind to know your financial objectives will be met.

*The material provided in this article is for informational purposes only.  We do not provide legal, tax or accounting advice.  Please contact your own advisers for legal, tax and accounting advice.