How to Check the Reputation of a Life Insurance Company

life insurance reputationBuying a life insurance policy can be tricky business. The simple task of purchasing coverage that will provide your loved ones with money to cover your final expenses and beyond turns out to be a bit more complicated process.

There would be nothing more devastating for your family than having you pass away, only to learn that the company you spent years paying premiums to did not pay the settlement as expected. Here’s how you can learn more about which are the best life insurance companies to work with and which need to be avoided.

Do the Best Life Insurance Companies Ever Fail to Pay?

One of the biggest fears a person paying for a life insurance policy can have is the company failing to pay named beneficiaries when the time comes.

The fear is warranted with proof the life insurance companies do sometimes fail to make payments. It makes even more sense when people think about the landslide of bank failures that hit the finance industry starting in 2008.

So can an insurance company fail? Like any other business, the answer is yes. It normally takes a bit longer for insurers to hit rock bottom because they are not obligated to pay money with the same regularity as banks that have to have your money on hand any day that you walk in and request a withdrawal.

According to a 2012 report from the National Organization of Life and Health Insurance (NOLHGA), there were 74 multi-state insurance company failures between 1987 and 2009, as opposed to 249 bank failures in 2010 and 2011 alone.

But despite the lesser odds, what happens if your life insurance company does fail? What happens to all of the premiums you’ve paid for months, years — or possibly decades?

The bad news is there is no federal program in place to protect consumers from insurance company bankruptcies. Of course, banks have the Federal Deposit Insurance Corporation (FDIC) and even credit unions have the National Credit Union Administration (NCUA), which both insure deposit accounts for up to $250,000.

But life insurance companies do have state guaranty associations (GAs) that protect policies. These associations are set up to back insurance policies in the event that a company goes bankrupt. Even better, the GA is usually able to protect your policy in your state of residence, even if it is different than where you originally purchased your policy.

Of course, it’s important to keep in mind that the amount your policy is insured for may not match the total amount of coverage you’ve purchased. Like the FDIC and NCUA, GAs cover policies for a limited amount (in the ballpark of $100,000 to $300,000, depending on the policy type and state of purchase).

How to Find the Best Rated Life Insurance Companies

The good news is that your loved ones are protected if your life insurance company somehow fails and is unable to pay money from your policy. Of course, you definitely don’t want your family to have to wait to acquire the money they deserve.

That’s why it’s important to check the reputation of a life insurance company and its financial health. Here are three sites to help you find the best rated life insurance companies:

  • A.M. Best Co.: A.M. Best Co. website offers a Financial Strength Rating for insurance companies. If the rating is above A, the company is probably a sure bet. If it drops to B or lower, you may want to look elsewhere for coverage. In order to access the ratings, you must register (for free) with the site.
  • Standard & Poor’s: Another website that offers financial ratings is Standard & Poor’s. Though the rating method is a bit different, the standard of A or above is the same when determining whether a company is a good bet. Like A.M. Best, you must register in order to read ratings on the website. Registration is free.
  • Moody’s Investor Service: As with A.M. Best and S&P, financial health ratings can be accessed online. Free registration is required to examine insurance companies.

In addition to buying life insurance death policies with the help of financial health ratings, if you’re looking for annuities, you can use an online annuity bidding service like Vanguard’s Annuity Access program to view insurance company ratings.

While it is common to go to the Better Business Bureau to learn about the reputation of a company, the bureau focuses on specific business locations. So if you’re interested in learning about a specific insurance company in your neighborhood, this is a great place to discover more.

Tips for Protecting Your Life Insurance Benefits

Once you’ve looked at various life insurance company reviews and ratings and have narrowed down your list of options, you can take a few additional steps to ensure the policy you purchase is protected:

  • Buy policies within your state GA’s limits: If you’re concerned that your life insurance company could go under and not payout the full amount of your policy, first learn the limits then keep each insurance policy under those limits. For instance, in Missouri the maximum is $300,000 for life insurance death benefits (not more than $100,000 in net cash values) and $100,000 in the present value of annuity benefits (including cash values) — $300,000 is the max payout for anyone one life. You can learn your state’s limits by visiting the NOLHGA website.
  • Tell your beneficiaries where to find your policies: Another way to increase the odds of your beneficiaries receiving payout is to tell them where they can locate your policies. Numerous insurance companies have been criticized for failing to pay death benefits to beneficiaries who were owed money, but didn’t know to contact the company directly to file a claim. By sharing the location of your policies, your beneficiaries can take immediate steps to claim their death benefits.

The more research you conduct on life insurance companies prior to purchasing a policy, the easier it will be to determine which life insurance is best for you based on reputation. Of course, you also want to acquire price quotes to ensure you’re not overpaying for premiums. But knowing that the company you’re working with will pay annuities and death benefits when time is definitely a huge relief.