Choosing a life insurance company

The cost of the life insurance policy

For many, deciding which life insurance company to go with usually comes down to the cost of the policy itself. The cost of premiums, the amount you pay the insurance company for your insurance coverage, can vary greatly among companies, which is a good reason to shop around for life insurance quotes.

When shopping for life insurance and comparing rates, be sure that you are comparing apples to apples. For example, be sure that each quote reflects your correct age, the same amount of insurance coverage, as well as the same type of policy and policy features.

Research life insurance companies

The Life and Health Insurance Foundation for Education (L.I.F.E.) states that, generally speaking, most life insurance companies are in good financial health. Although most companies are financially stable, L.I.F.E. suggests you research the insurance companies you are considering to ensure that you can depend on the company you ultimately purchase your policy from.

Evaluate the company

Insurance companies are required to maintain large cash reserves. These reserves are in place to make certain that insurers can meet their financial obligations to their customers. You can evaluate the financial strength of insurance companies by using one of five independent rating agencies:

1. A.M. Best Company
2. Fitch Ratings
3. Moody's Investor Service
4. Standard & Poor's
5. Weiss Ratings

Some of these services provide life insurance company ratings to consumers for free, but may require no-cost registration--some services may charge a fee. Keep in mind that not all ratings companies use the same ratings scale. For example, Fitch Ratings uses AAA to denote its best rating, but A++ is the highest rating from A.M. Best.

You shouldn't choose a company with a vulnerable rating. But, when comparing insurance companies that have secure ratings, ratings shouldn't be the only determining factor. According to L.I.F.E., if you are considering two policies and one is underwritten by a company with an A.M. Best rating of B+ and another policy is from a company with an A rating, the best policy may not be with the higher-rated company. If the policy with the B+ rating has more of the features you need, it might be the better choice for you.

Size isn't everything

Purchasing a life insurance policy from a large insurance company with a well-established name may appear to be your best bet. After all, most large insurers have been in business for decades, which may indicate the company understands how to manage risk and meet long-term financial obligations. However, L.I.F.E. points out that a smaller insurer may have the same industry expertise, and could have the same track record of meeting financial obligations for the same number of years. In other words, don't automatically assume that the larger institution is your safest choice.

Check with your state

Life insurance companies are regulated at the state level, and the III recommends that you pick a life insurance company that is licensed in your state. If you find that there is an issue with your life insurance company, such as insolvency, your state's life insurance guaranty fund only helps policyholders who purchased policies from companies licensed by the state.

Your state's insurance department is also a good place to get background information on life insurance companies you are considering because it tracks complaints filed by customers. The type of complaint information logged by the department of insurance varies by state, but most departments can tell you if a company has had any complaints filed against it--and whether or not the rate of complaints in relation to the number of policies sold is high.

Jim Sloan

Jim Sloan is a freelance writer in Reno, Nev.

Tips on Buying Life Insurance - http://www.doi.sc.gov/consumer/life.htm

Consumer Tips in Purchasing Life Insurance or an Annuity - http://www.doi.idaho.gov/consumer/consumer_tips.aspx

*Answering questions on this page will not result in a determination of your eligibility for coverage. Your agent will guide you.