If your life insurance company is in financial trouble, 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 work out.
Two important points to keep in mind when thinking about life insurance company finances:
First, understand that life insurance companies are highly regulated, and bankruptcies are rare. If an insurance company can’t meet its obligations, the insurance commissioner in the state where the company is headquartered will initiate a process called rehabilitation. If the company can’t be rehabilitated, it will be declared insolvent and liquidated. Then the state guaranty association will continue to provide coverage and pay death benefits to policyholders.
Second, know that you can get a sense of their financial stability before you buy coverage based on ratings from third-party agencies to avoid this situation.
With these two points in mind, here’s what you should know about the financial stability of your life insurance company.
Why life insurance company ratings matter
Life insurance companies receive ratings from independent agencies based on their assessments of the insurer’s financial strength and claims-paying ability. The higher the rating, the higher the rating agency’s assessment that the insurer will be around to pay out the policy to your beneficiaries.
Third-party ratings agencies are evaluating life insurance carriers on the nuts and bolts of their financial strength. Using varying degrees of rigor, ratings agencies evaluate how well-funded an insurance carrier is, how much risk it carries, and its operating performance. Each ratings agency has a different formula.
Ratings represent the opinion of the rating agency of the financial strength and ability to meet the contractual obligations of the company being rated, based on the rating agency’s independent analysis.
How to check on your insurer’s financial stability
There are several rating agencies out there – not to mention independent customer review sites – but four of them are most frequently touted to represent the quality of life insurance companies.
Each of the four — A.M. Best, Fitch, Moody’s and Standard & Poor’s — has its own standards and grading scale for rating insurance companies.
It’s important to get familiar with the rating agency whose grades you’re considering. Otherwise, the score could give you a false sense of security. For example, A+ is A.M. Best’s second-highest rating, but an A+ is Fitch’s fifth-highest rating.
The ratings organizations themselves may make you pay a fee for the privilege of seeing their ratings. But 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 coverage issued by MassMutual, one of the country’s oldest and most reliable life insurers, or its subsidiary C.M. Life Insurance Company. Here are MassMutual’s and C.M. Life’s financial stability ratings:
- A.M. Best: A++ (Superior)
- Fitch: AA+ (Very Strong
- Moody’s: Aa3 (High Quality)
- Standard & Poor’s (S&P): AA+ (Very Strong)
A rating is not a guarantee of financial strength, but should be something you consider when shopping for coverage.
How to find the coverage that is right for you
You can never be too selective when your family’s financial security is at stake. Put your insurer through the paces to help access the likelihood it will be there when you need it most. Reviewing financial stability ratings for each insurer is a good place to start when you’re researching life insurance.
Once you’ve identified the top life insurance companies, get an estimate of your life insurance rate. With Haven Life, you’ll probably be pleasantly surprised at how affordable term life insurance coverage can be, given the average life insurance rates on offer. Most Haven Life policies require a medical exam, but some do not. (You’ll still want to tell the truth on your application.)
Find out the average monthly premium for your age and gender, along with the right term lengths (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. U.S. 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.