You want a policy from a life insurance company that will be around for the foreseeable future. To find one, look for these three attributes in a provider.
Many of the things we need in life come with a contract, whether you're buying a car, a home or a life insurance policy. These contracts can help to protect both you and the life insurance provider — and make sure everyone is on the same page.
But, before signing on the dotted line, it's important to research the company with which you're doing business. That's especially true for life insurance, as you'll want to choose a company that will still be around 10, 20 or 30-plus years from now.
Your family's financial future might depend on it.
How can you find a reputable life insurance company? Look for these three attributes.
It's great to support a new business when it comes to things like coffee or a haircut. (Hey, even if it doesn't work out, hair grows back, right?) But the life insurance company you choose is one you'll be sticking with for years — even decades — to come. As a result, you'll want to choose a company with longevity and experience.
To gauge how long a company has been in business, you can check the "About" or "Company" page on its website.
Financial strength is another indicator of long-term stability. Of course, you can't tell a company's financial standing just by looking at its website. Rating agencies, such as A.M. Best, can help to provide unbiased ratings for the life insurance company you're considering.
Each rating agency has its own system for rating life insurance companies. For example, A.M. Best's ratings range from poor to superior.
How Do Life Insurance Companies Make Money?
Almost all life insurance companies make money by investing the premiums, or the money you pay for your life insurance, with the strategy that they will make more on that investment than the life insurance company will have to pay in claims (death benefits). There is also the income stream that occurs when a customer stops paying for their life insurance policy (or the life insurance policy lapses), leaving the insurance company with the money that has already been paid.
There are other ways life insurance companies make money, including:
- Underwriting - the life insurance company goes through a comprehensive underwriting process to ensure that the person qualifies for the life insurance policy they are applying for. This helps determine the appropriate rates charged for their desired life insurance policy.
- Investments - the life insurance company can invest the monthly premiums of their customers in financial markets, allowing them the capital to help pay death benefits in the event of a life insurance claim.
Before you eat at restaurant or book a hotel room, we're willing to bet that you read online reviews about it. Reviews can help give you an idea of whether customers are generally happy or unhappy with the service they received.
Some red flags can include having difficulty reaching customer service, which is critical if you need help answering questions or making changes to a policy. You want to work with a life insurance company that is committed to helping its customers, even after the sales process is over.
A good company isn't one that only receives positive feedback, of course. It's one that cares enough to work with customers to resolve issues quickly and effectively. You can find reviews on a company's Facebook page, its own website, or third-party review sites.
Policies That Meet Your Needs
You've narrowed down your list of life insurance companies to the ones that have financial strength and great customer service. Now, you need to find one that offers a policy that aligns with your needs.
To help you determine those needs, consider:
- The people who depend on your paycheck, such as a child, a spouse, or an elderly parent
- How much your loved ones might need, both immediately and long term, if you were no longer here
- What you can afford to pay for life insurance
Then, think about how long you'll need coverage — either for a set period of time (term life insurance) or up to a lifetime (whole life insurance).
Let's say you have a growing family and want protection from the days your kids are in diapers to the day they receive their diplomas. In that case, term life insurance could offer greater protection during the years you need it most — and often at a lower rate than other types of policies.
Or maybe you want continuous coverage that never expires, which you can find with a whole life insurance policy. It offers coverage for life at a rate that never increases, which is great for those who just want to "set it and forget it."
Life Insurance Company Ratings
When choosing a life insurance company one of your primary considerations should be their ability to pay benefits and settle claims. The life insurance company with the cheapest price is not necessarily the best choice. The simplest way to verify an insurance company's financial solidity is to check the life insurance company's financial strength ratings.
3 Steps to Review a Life Insurance Company's Financial Strength:
- Check for yourself. Don't rely only on what the life insurance company says. Companies are likely to highlight a higher rating from one agency and ignore a lower one from another agency, or to select the most favorable comments from a rating agency's report. Consider checking a company's rating for this year and the previous year from 2 or more agencies before buying or keeping a policy. Agencies announce changes of ratings at any time so we recommend an annual or more frequent check up on ratings of your insurance company. A number of highly respected independent organizations rate financial strength of insurance companies. Among these are: A.M. Best, Fitch, Moody's Investor Services, Standard & Poor's and Weiss Ratings, Inc.
- Know the differences in rating codes. An A+ from A.M. Best is the next-to-top rating of its 15 categories, but an A+ from Fitch or S&P is their 5th-highest rating (out of 24 categories for Fitch, and out of 19 categories for S&P). Moody's doesn't have an A+ rating. Each rating firm uses its own evaluation process typically assessing insurance company financial strength, recent performance and stability of management. The rating scales are different. Some might use AAA to indicate strength, while others may use A++ and an A+ at one does not necessarily mean the same thing as AA at another. Read what the agency says they have measured and ratings interpretations.
- Search by underwriting company, not by brand. Life Insurance companies may market product under a brand that is different from their company's legal name. Check the insurance company's web site for a complete list of underwriting companies for that brand name.
Other Things to Consider When Looking at Life Insurance Companies
Choosing the right life insurance company and policy can be a big undertaking and a very important decision. You may want to work with a life insurance company that will make it an easy process, easy for your family to receive the benefits you paid for and a hassle-free experience. Here are some additional things to consider when looking for a life insurance company and policy:
What Do Life Insurance Companies Test For?
When you apply for life insurance, the life insurance company will sometimes request a medical exam to help determine the appropriate rate class and determine if you are at risk for any health issues. This life insurance medical exam may involve a physical, blood test, urine test or EKG, as well as some questions about your medical history. Medical exams are standard for most term and permanent life insurance policies, and provided for free by the insurer, as it gives them the opportunity to confirm your health details.
Do Life Insurance Companies Test For Drugs?
During the exam, the examiner will typically screen for drugs. This test is similar to drug tests you may have taken for employment and are usually administered by testing a small urine or blood sample. A common drug panel may include: amphetimines, cocaine, marijuana, nicotine and more. Often, if you test positive for drugs, you may be declined for life insurance. One exception may be for tobacco/nicotine usage, and that will often change your life insurance rate class.
How Do Life Insurance Companies Check Your Medical Background/History?
Typically during the medical exam or underwriting process, the examiner or the underwriter will have you complete a medical history questionnaire that outlines your personal medical history. It may ask for details about your health and lifestyle, past or future medical procedures and even a family history of common genetic diseases.
How Do Life Insurance Companies Get Your Medical Records?
Unless you've given your written permission, no life insurance company can have access to your medical history. However, if you agree to disclose your medical records, then your doctor will normally comply with the life insurance company's request to examine your records.