If your life insurance company is having financial problems, it’s natural to wonder if you should start shopping for a new policy with another insurer or sit tight and tell yourself that everything will be fine.
Two important points to consider when considering the economics of life insurance companies:
First, understand that life insurance companies are highly regulated, and bankruptcies are rare. If an insurance company is unable to meet its obligations, the insurance agent in the state where the company is headquartered will begin a process known as rehabilitation. If the company cannot be rehabilitated, it will be declared insolvent and liquidated. Then the state guarantee association will continue to provide coverage and pay benefits to policyholders.
Second, know that you can get a sense of their financial stability before purchasing coverage based on ratings from third-party agencies to avoid this situation.
With these two points in mind, here is what you should know about the financial stability of your life insurance company.
Why Life Insurance Company Ratings Matter
Life insurance companies are rated by independent agencies based on their assessments of the insurer̵7;s financial strength and claims-paying ability. The higher the rating, the higher the credit rating agency’s assessment that the insurer will be in place to pay out the policy to your beneficiaries.
Third-party rating agencies evaluate life insurance companies on the nuts and bolts of their financial strength. By using varying degrees of accuracy, credit rating agencies evaluate how well-financed an insurance company is, how much risk it entails and its operating results. Each credit rating agency has a different formula.
The ratings represent the credit rating agency’s perception of the financial strength and ability to meet the contractual obligations of the company being rated, based on the credit rating agency’s independent analysis.
How to check your insurer’s financial stability
There are several credit rating agencies out there—not to mention independent customer review sites—but four of them are most often touted to represent the quality of life companies.
Each of the four – AM Best, Fitch, Moody’s and Standard & Poor’s – has its own standards and rating scale for rating insurance companies.
It is important to familiarize yourself with the credit rating agency whose rating you are considering. Otherwise, the score may give you a false sense of security. For example, A+ is AM Best’s second highest rating, but A+ is Fitch’s fifth highest rating.
The rating agencies themselves may force you to pay a fee for the privilege of viewing their ratings. However, typically a life insurance company will list its ratings from these agencies on the company’s website. For example, Haven Life offers term life insurance policies issued by MassMutual, one of the nation’s oldest and most trusted life insurance companies, or its subsidiary CM Life Insurance Company. Here are MassMutual’s and CM Life’s financial stability ratings:
- AM Best: A++ (Superior)
- Fit: AA+ (very strong
- Moody’s: Aa3 (high quality)
- Standard & Poor’s (S&P): AA+ (very strong)
A rating is no guarantee of financial strength, but should be something you consider when shopping for coverage.
How to find the coverage that suits you
You can never be too selective when your family’s financial security is at stake. Put your insurer through the paces to gain access to the likelihood that it will be there when you need it most. Reviewing the financial stability rating of each insurer is a good place to start when researching life insurance.
Once you’ve identified the best life insurance companies, get an estimate of your life insurance rate. With Haven Life, you will probably be pleasantly surprised at how affordable life insurance coverage can be, given the average life insurance rates offered. Most Haven Life policies require a medical exam, but some do not. (You still want to tell the truth about your application.)
Find out the average monthly premium for your age and gender, along with the right term (Haven Life offers up to 30 years), by getting a quote today.
About Cameron Huddleston
Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations with Your Parents about their Finances. She is an award-winning journalist with more than 18 years of experience writing about personal finance. Her work has appeared in Kiplinger’s Personal Finance, Business Insider, Chicago Tribune, Forbes, MSN, Yahoo and many more print and online publications. US News & World Report named Cameron one of the top personal finance experts to follow on Twitter, and AOL Daily Finance named me one of the top 20 personal finance influencers to follow on Twitter. She has appeared on CNBC, MSNBC, CNN and “Fox & Friends” and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR and more than 30 podcasts. Cameron has also been interviewed and quoted as an expert in The New York Times, Chicago Tribune, BBC.com, MarketWatch and more.
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