From Which Company Should I Buy a Life Insurance Policy?
Today’s life insurance companies have transformed both themselves and their products in an attempt to protect against a repeat of the last decade’s financial dissonance. Universal Lite and Variable universal Lite policies shift the premium sufficiency risk to the policy owner; such policies represented roughly 50 percent of new sales in 2003.2 Whole Life and No Lapse/Secondary Guarantee Universal Life are backed by the carrier’s financial stability. Term (during its initial guarantee period) is also backed by the carrier’s financial stability, but sufficiency risk is shifted to the policy owner during the period beyond the initial guarantee in which death is more likely to occur.
While there are still unique product offerings that may be offered by some companies, the selection of an insurance company should follow standards of prudence and due diligence in an economic environment characterized by volatility and instability. The following standards for choosing a life insurance company are recommended:
Choose carriers with financial ratings from at least three of the major ratings services (e.g., A.M. Best, Moody’s, Standard & Poor’s, Fitch, and Weiss).
Choose carriers that have financial ratings of at least A+ from A. M. Best and that are not less than fifth from the top rating categories of the other agencies (e.g., Moody’s, Al or better; Standard & Poor’s and Fitch, A+ or better; Weiss, B or better). There is rarely a compelling reason to make exceptions.
Recognize that, while cheap term is often offered by small insurance companies, the cost difference is minor to acquire term from a larger company.
If buying term, consider policies offering conversion features that can solve the emerging problem of lessening insurability and longer time frames than initially expected when the term policy is first acquired.
Choose a carrier offering policy types and features that are attractive to you and that seem to fulfill your needs.
Do not choose a carrier based on its policy illustrations, appearance of competitive pricing, or other nonguaranteed representations.
If buying permanent life insurance, consider whether your insurance style suggests more comfort with a mutual insurer or a stock insurer.
