How to Pick a Good Life Insurance Company ?
This is not as difficult as it might seem. There are thousands of insurance companies in the United States. Many sell property casualty insurance, which covers auto accidents, hurricanes, fires, and other casualties that occur to property. Many sell medical insurance to cover hospital and medical bills for policy holders. A few sell Disability Income policies to help replace income when a wage earner is unable to work due to a disability. And many companies also sell life insurance and retirement annuities. There are approximately 2,800 Property/Casualty and 1,400 life insurance companies currently operating in the United States. But of all those risks that the insurance companies try to manage to maintain profitability, the most predictable one is, when policyholders will die or cancel their life insurance policies. Just in this country alone, during 2004 life insurance companies paid out more than $49,388,000,000. That's almost $50 billion dollars going to families, in most cases, so they can continue to carry on with their lives and dreams after the death of an income earner.
In the twenty years that I have been in the financial services business, I have only been able to find one occurrence when an insurance company failed to pay a legitimate life insurance claim. The life insurance company was in texas, and the year was 1913.
Are life insurance companies living up to their contractual promises? Absolutely. If an insurance company ever declined to pay a legitimate death claim, it most likely would hit the newspapers and probably cause serious financial disaster to the insurance company. If it was actually an extremely legit claim that was denied, no honorable life insurance agent would ever market that companies life insurance policies again.
It is because of the history of the insurance industry as a whole that it is treated almost as sure to pay as a government entity would be. The insurance company is trusted to protect our greatest assets: our cars, our houses, our medical care, our businesses, and even our very lives. Your bank deposits that are protected by FDIC, and the "I" stands for "insurance:.
With all of that said, there are industry standards for evaluating a life insurance company. There are several rating companies that specialize in these evaluations. I happen to look at several of them. This is purely to perform my due diligence to my clients. I have no doubt that any term life insurance policy sold today will be as sure to pay the benefit at time of death as any, regardless of which insurance company issued the policy. Here is why. Life insurance, especially term life insurance, is a very predictable business as I said before. Also, in the event of financial problems, which surely would be related to some other aspect of the business, the public cannot raid their term life insurance policy for cash values as there are none. Their only payout come with the event of a deceased insured. And if all else fails, every state in the country now has some form of insurance guarantee fund to help make beneficiaries whole. In every case I have seen in the last 20 years, healthy insurance companies buy up the assets (policies) of the failing carrier.
Here are some life insurance company rating organizations.
A.M. Best Company
FITCH Credit Rating Company
Standard & Poor's Credit Ratings
I only look at companies with an:
A.M. Best rating of A-, A, A+, or A++
Standard & Poor's of AA-, AA, AA+, or AAA
Fitches Credit Rating of AA-, AA, AA+, or AAA
There are some exceptions that may need to be taken if an applicant has some serious medical conditions that only lower rated carriers may accept.