I recently spoke with a gentleman who was searching for the best possible life insurance company. He wanted to replace his term policy that expired and was looking for online reviews. Finding low rates were high on his priority list, but he also wanted to find a top-notch life insurance company. He had problems finding good information on how to choose the best life insurance company.
Curious as to what he found online, I searched to find out what was on the Web. I’m always willing to learn and hoped I could glean some insight from other professionals. He was right. There is very little quality information to help people in this pursuit. If you’re shopping for a car, then there is an abundance of helpful information. Life insurance – not so much.
In this article, I will evaluate the importance of finding top-notch life insurance companies. You will learn how to choose the best life insurance company for your particular needs.
The Best Life Insurance Companies
When you search for term life insurance or GUL (term for life), you might notice that often times there are several carriers with very similar rates. For example, use our quote engine on this page and check out the results. You might find two or three carriers that have almost identical premiums. So, how do you choose? What separates one company from another?
This gentleman, whom I referred to above, had a policy with Pacific Life – an excellent carrier. Pacific Life was highly recommended by Consumer Reports, but that was 20 years ago! Now, he couldn’t find similar information from an independent source. I shared with him the following information and decided to organize it for others to read. He found it extremely helpful; hopefully, you will too.
This is the number one criteria (next to cost) for most consumers shopping for life insurance. This becomes much more important when shopping for a policy without guarantees. For example, if you’re shopping for a permanent policy that has lots of moving parts and variables, then you are putting your trust in the life insurance company. Selecting a top-rated carrier is of the upmost importance.
One of the reasons why we like policies that are fully guaranteed (premiums and death benefits) with NO moving parts is because you don’t have to worry about how the insurance company’s financial well-being will affect your policy. So, if everything is guaranteed, then why is it still important to select a top-rated company?
Sub-par Financial Ratings
If you select a carrier with sub-par financial ratings, then there is a greater likelihood that the company will fail and go into liquidation (or receivership). Even if this does happen, as it did with AIG, then you still have protection. In 2008, the federal government’s $85 billion bailout of AIG kept them from bankruptcy. Granted, that’s not likely to happen again.
State insurance regulators will ensure that death benefits are paid through the state’s guaranty association. There are maximums – usually in the neighborhood of $300,000. However, if your life insurance company is liquidated, the state regulators would step in, even for face amounts greater than the guarantee association’s maximum. Your policy would most likely go to another life insurance company.
If your policy has non-guaranteed values, then the new carrier would likely take advantage of those non-guaranteed values. If your policy is a guaranteed level product, then you’re in good shape. This is highly unlikely to happen, but it’s good to know.
Life insurance companies will always pay a valid death benefit claim.
That is quite a statement and it requires some qualifiers, but it underscores the reality that life insurance is a binding contract. Some beneficiaries do not receive life insurance proceeds because the life insurance claim isn’t valid.
If, during the 2-year contestability period, the insured dies, then the life insurance company can investigate. They want to know if the insured died to a health condition that wasn’t disclosed on the application. Sometimes, applicants don’t disclose that they travel to high-risk countries or that they participate in hazardous avocations. These are some of the main reasons why insurance companies will deny a claim.
Let’s say someone visits a doctor due to persistent severe headaches and blurred vision. Shortly after the visit, they quickly purchase a life insurance policy and fail to disclose the doctor visit or health conditions on the application. If that person died one year later due to a disease related to the headaches and blurred vision, then the life insurance company could investigate and contest the claim for misrepresentation.
Variations of the example above happen more often than you might think. This is more common with “rapid-issue” policies of smaller face amounts.
Cause of Death
If the insured’s cause of death is suicide, then the insurance company will decline the claim (if it’s within the first two years of the policy). After the first two years – the contestability period – then life insurance companies cannot deny claims, even due to suicide or misrepresentation. There is much more I could write on this subject, but suffice it to say that life insurance companies pay valid death benefit claims.
You can minimize your risk of the life insurance company delaying the benefit payment by choosing a top-rated carrier. They want to protect their good reputation by paying claims promptly.
How Important is an A+ or A++ rating by AM Best?
Well, when shopping for one of the best life insurance companies, checking their AM Best rating will certainly help. AM Best is an independent rating agency and rates insurance companies based on their overall financial strength and stability. According to AM Best,
The rating process used to develop a Best’s Credit Rating opinion represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of balance sheet strength, operating performance and business profile or, where appropriate, the specific nature and details of a security. The analysis may include comparisons to peers, industry standards and proprietary benchmarks as well as assessments of operating plans, philosophy, management, risk appetite and the implicit or explicit support of a parent or affiliate.
The top AM Best rating is A++
Should you only look for carriers with an A++ rating? If you do this, you will severely limit the number of carriers available. There are only a handful of carriers that fall into this category. Typically, it’s unusual to find the top low-cost term carriers rated A++. Occasionally, an A++ carrier will have low term rates, but it’s not the norm. Also, the difference between very strong A+ rated carriers and A++ rated carriers is often minimal.
American General (a subsidiary of AIG) was one of the low-cost A++ rated companies for many years. We know what happened to AIG. American General still has competitive life products, but their financial ratings are quite a bit lower.
It’s important to look at an insurance companies size and diversity. We help our clients look at the most important criteria among the A+ rated carriers.
The Comdex Score is very helpful since it shows how an insurance company compares to all other insurance companies. This score is a composite of all the other ratings. Since it can be difficult to decipher the ratings by agencies such as AM Best, Moody’s and others, the Comdex score makes it simple. If a company receives a Comdex score of 85, then it means that company is ranked higher than 85% of all carriers.
Service. How important is this?
Customer service is important, but it is not one of the top considerations when choosing a life insurance company. Unlike other types of insurance such as health or auto, there is very little need to contact life insurance companies. However, when you do need to some service, it is nice to receive prompt, efficient and courteous service. Below are a few of the most common areas where policy owners need service.
Whether it’s due to a change of address or a change of banking info (for EFT), it’s common to contact your insurance company with updated information. This should be a quick and easy process. You want to be sure to follow-up and receive confirmation the changes were made. Carriers with strong customer service will provide confirmation. Missing premium payments could cause your policy to lapse.
Beneficiary or Owner changes
Every so often, it’s necessary to update beneficiary information. Sometimes, you might have a need to change your primary or contingent beneficiaries. Also, you might want to change the beneficiary percentages.
Policy changes or Benefit Questions
Reducing the death benefit, asking about conversion privileges, or simply getting basic policy information that you may have misplaced or forgotten.
Obviously, during such a grieving time, you want to be assured of prompt assistance in receiving a death benefit. If you’re the policy owner, you want the assurance that your loved ones will have an easy time with this process. Some smaller, lessor-known carriers can “stall” and make the process difficult.
The above list of service needs is not exhaustive. Additionally, it’s not always necessary to contact the insurance company directly. Most of our clients contact us and we quickly provide the needed information and make the process painless.
So, yes, customer service is important, but it’s not critical. There are only a few life carriers known for poor customer service. Most carriers are do a good job with customer service.
Other Important Criteria When Selecting a Life Insurance Company
Many times, you will discover there are two or more companies with similar rates and similar financial ratings. Let’s say you found two carriers with A+ ratings by AM Best and a Comdex score in the 88 to 92 range. Well, it’s important to consider other factors also.
- Conversion If you’re looking at term insurance, then the convertibility of the policy can be very important. Even if you think you’ll never want to convert your term policy to a permanent one, it could be a very good option to have…just in case. Read more about conversion in an article here.
- Accelerated Death Benefit Many carriers offer this benefit at no extra cost. Typically, the carrier will allow the insured to access up to 50% of the death benefit if diagnosed with a terminal illness. Terms of this benefit vary.
- Riders Some people find certain riders to be very important. Commonly, carriers will offer Children’s Life Insurance, Waiver of Premium (for disability) and an Accidental Death Benefit. Rates and benefits for these riders can vary significantly. On some GUL products, there are additional benefits, such as Chronic Illness, Long-term Care, and Return of Premium. Again, these benefits can make a big difference when considering comparable products.
- Underwriting We have written extensively on this subject in other posts. Underwriting guidelines vary with each carrier and this can make a huge difference in cost (as evidenced in this article – showing how one person saved over $500/year in premium). However, this article assumes a knowledgeable agent helped you select the proper underwriting classification and there are still two or more carriers with similar rates.
How to Choose the Best Life Insurance Company – Conclusion
Selecting the “best” life insurance company is not as simple as reading reviews on Consumer Reports. There are many factors that go into making this decision. However, one of the most important considerations is choosing an experienced, knowledgeable, independent life insurance agent.
An independent agent will provide an objective opinion and can help you determine what is most important for your unique situation. Experience is very important. It takes many years in the life insurance industry to become an expert and know the “ins and outs” of the industry.
We will be glad to help you find the product and company that best meets your needs. Please call us or complete the quote request form to get started.