4 Key Things to Look for When Choosing an Insurance Company

Choosing an insurance company to work with can be a difficult task if you are not familiar with the industry. Many people have different needs and requirements, while insurance companies vary in what they offer. Here are some key characteristics that will help make this decision easier.

1.) Financial Strength

Life insurance companies are required by law to keep reserves and maintain a surplus (assets in excess of liabilities/reserves) to protect from default, but it’s a good idea to look at an insurer’s financial strength rating before making an assessment. An insurance company’s financial strength is important because it correlates with its ability to pay obligations in full and in a timely manner, even during a catastrophe where a large amount of claims are being made in a small time frame. And with life insurance, claims may not be made for decades, so choosing a financially healthy company is important. Some widely used independent rating agencies include: A.M. Best, Moody’s, and Standard & Poor’s (S&P).

It is important to note that each rating agency uses different criteria for their evaluation. Much like a top 100 music list, results will vary depending on what magazine published it and what they deem as important qualities. On top of that, ratings aren’t scaled the same across the board, meaning an A+ from A.M. Best is not the same as a an A+ from S&P. Below is a chart of the ratings (left to right, best to worst) from the 3 agencies mentioned.

A.M. Best A++, A+, A, A-, B++, B+, B, B-, C++, C+, C, C-, D
S&P AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C
Moody’s Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C

A.M. Best only rates insurance companies while Moody’s and S&P rate other industries as well. Each rating agency has its own definition for each rating. A.M. Best for example, has seven rating categories including: Superior, Excellent, Good, Fair, Marginal, Weak, and Poor (In order from best to worst). Companies are defined in each category based on A.M. Best’s opinion on its ability to meet obligations.   When deciding which company to work with, I suggest not getting caught up in comparing companies that are A++ versus A or A-. Rather, use the ratings to avoid the lower scores as most insurance companies with an A- or better will generally be financially strong. Look for companies that have been in the industry longer as they tend to be more stable.

2.) Product

This is one of, if not the most important factor in your decision process. If a company does not have the right product for you, then you should probably look elsewhere. What do I mean by “right product,” aren’t all insurance policies the same? Well, while they all have some similarities, insurance companies create vastly different policy structures to achieve different goals.

Life insurance can be used to build cash value, protect family income, leave an inheritance, protect from debt, help pay for critical, chronic, and terminal illness, help fund for retirement, pay for funeral costs, insure business partners or employees, help charitable causes, and much more. Identify your own goals and choose a product that excels in that area.

A product that excels in inheritance or legacy planning might focus on building a bigger death benefit for your beneficiaries, with a disadvantage of building very little cash value. These are tradeoffs that you will have to weigh and compare between policies of different companies. Most companies will allow you to convert term policies into permanent ones later on, which is something to keep in mind when choosing the right product.  If you have questions, I suggest that you talk to an independent agent who represents multiple insurance companies. This way, you can get an unbiased opinion and aren’t limited to one particular company and its products. You can also leave us a message here.

3.) Price

Permanent life insurance policies are generally long commitment plans. Although some policies’ premiums are flexible in amount and frequency, it’s still a good idea to budget a set amount for your policy. Getting a quote from an insurance company is free to the consumer, so check multiple companies and see which price is getting the most value for what you need. One of the main factors in price is your overall health. Depending on the criteria of the company, some will give you better rates for the same health condition. This can be crucial in making sure you get the most for your money.

Term insurance premiums will be cheaper than permanent insurance, for the same death benefit; however generally, you will lose out on most of the living benefits found in permanent policies. For some tips on getting the most bang for your buck, read this article.

If you’re looking for term insurance, quotes are easily obtainable from multiple companies within minutes of using a quote form. You can use our quote tool to see rates here – you don’t need to provide any contact information to see the prices.

4.) Service

Insurance companies, like any other industry, should have quality customer service. How long does it take to actually talk to a real human being rather than an automated message machine? Do they have a fast response time? Are the people knowledgeable and competent? These are some questions you should be asking to determine if the company has good service. If you have questions about your policy, it’s nice to know that you can talk to someone without having to wait weeks for a response. Also, the last thing you want to worry about after a death in the family is waiting for the insurance company to send the check. Be sure to check reviews on each company and make sure they have the service you are looking for. I suggest using Better Business Bureau to look at the ratings and reviews of each company.

Conclusion

Choosing an insurance company to work with mainly has to do with if a company has a product that will fit your needs for a reasonable price. Make sure they have good financial strength ratings and will pay claims and answer questions in a timely manner. If you aren’t sure about which product is right for you, talk to an independent agent about what you want your policy to do. Take advantage of the free quotes to compare prices. Use third party websites for reviews and ratings and do your homework on each company.

To talk to an expert about your life insurance needs, click the button below.

Contact Us
top