To know How To Choose Life Insurance Company is not an easy task, especially if this is your first-time buying life insurance. But having a financial safety net for your loved ones is an investment in your future.
We’re going to cover some key things that everyone should consider before they choose a life insurance company which include;
Why Does Choosing a Life Insurance Company Matters?
The Autumn of 2008 was a hectic time. In Kitchener, Ontario parents were sending their children to school, in rural Newcastle the apple harvest was beginning, and in New York bankers and regulators stared into the abyss of the financial system.
Credit dried up seizing the financial system, regular people were defaulting in droves across the US, and stocks were taking a nosedive. Life wasn’t looking great for your average American, even those who were invested in safer assets like money market funds.
One unexpected consequence was AIG going bankrupt because they sold Credit Default Swaps to insure Mortgage Backed Securities, which became a toxic asset during the financial crisis.
How To Choose Life Insurance Company
Here are some other factors to look into as you do your research into these companies:
1. The Company’s Reputation
Don’t get taken in by flashy advertising or expensive marketing campaigns. Check out how long the company has been in the insurance business. A good track record should be your primary consideration when looking for an insurance company. Look them up on the Internet and do some research about how they do business. The Internet could be a good source of information about them especially customers’ reviews that describe their service and reliability.
You may not find one that has 100% positive reviews – in fact; you should look at the negative feedback. Find out the nature of the problems brought out by the dissatisfied customers. If you find reports about non-compensation of its policyholders, then that is a big red flag for you. You’ve better not do business with these people.
2. Financial Stability
Each state regulates the insurers in their jurisdiction. Their respective insurance departments monitor the financial health of licensed insurers so they can do business in the area.
States promulgate many regulations to prevent insurer insolvencies. Just the same, some insurance companies still fail. So before you buy a policy, make your own evaluation about the insurer’s financial health.
The good news is, evaluating an insurer’s financial health does not require you to be a business or math expert. Rating firms have done the hard part for you. Some of these firms are A.M. Best, Standard and Poor’s, Moody’s and Fitch. Each of these agencies follows their own rating criteria. Because of this, one company can get a high rating from one agency and get a low rating from another. So consider looking at multiple ratings when evaluating an insurance company.
3. Premium and Cost
A premium is an amount that you pay the life insurance company. Even for the same amount of death benefit and insurance type (i.e., term life insurance) the premium can differ widely among companies. This is because some companies have product features that others don’t have or maybe, they just simply charge higher. So the first step in comparing policies is to compare similar plans based on:
- Your age
- The type of policy and its features (see how to choose the right type of life insurance)
- The amount of insurance coverage you want
Remember this: the cost of the premium is not always proportionate to the amount of protection of the policy. One policy might have a higher premium but might have additional benefits (like policy dividends) than others. Maybe two companies might promise policy dividends but for different amounts and different times. In some cases, the higher premium may give a lower coverage or protection.
So how can you tell what a policy’s cost is?
Your company should tell you the policy’s net payment cost index (the number of death benefits provided in the policy). They should also tell you the surrender cost index (amount you’ll get if you surrender the policy in the future for its cash value).
4. Service Quality
This is important when choosing an insurance company. Find out their employee’s attitudes towards potential customers like yourself. Are they available to respond to inquiries whether by phone or in person? Do they patiently listen to your needs or are they eager to make a sale?
The trend today is buying insurance online. Although it is convenient and easy, you still have to be careful about buying insurance products through the net. It is advisable to buy insurance from a company that has a physical presence in your locality.
This way, in case serious problems arise, you have an office to run to. Also, buy from a company that has a specific license to sell in your state. This will avoid all the hassle should you need to file a lawsuit for claims against them.
6. Company’s Full Disclosure
No surprises, please! Choose a company that has a full disclosure policy. Know all the terms and conditions of the product you are buying as well as the many do’s and don’ts. An ideal company should be clear and open about its clauses and conditions. But some companies hide clauses inside the fine lines and use these clauses later to avoid paying their policyholders.
Many policyholders are equally guilty because they do not try to understand the policy. Some just sign and agree on the forms without even reading the entire contents. It is important to read and know all the provisions of the policy before you sign it. It would even be better if your lawyer can read it before you sign.
Your insurance advisor should be there to help you choose a life insurance company and ensure it is the right one for your financial plan.