Why are you buying life insurance? Which policies should you pursue? How do you obtain the information to make an informed decision? The pressure to make sure that you purchase the right policies for your life can seem daunting. You may be worried that the policies that you are considering won’t adequately protect your family from financial disaster, or that a carrier won’t be able to pay the insurance proceeds. If you consult a licensed insurance agent, and perform some of your own homework, then you can make an informed insurance coverage decision with more confidence.
Your agent is there to help you. When you meet with your agent, pay close attention to the policy illustration. An illustration is a projection of the performance of a policy over time, and will explain how the policy works and what you should expect. Illustrations are reviewed and approved by state insurance commissioners as well as by the carriers’ legal departments.
Once you have found a policy that meets your needs, you may have questions about the carrier’s financial health. As with most financial institutions, life insurance companies are evaluated by ratings services that assess the carriers’ abilities to meet their obligations. Ratings companies evaluate carriers using many factors including investment makeup and diversity, liquidity, historic return on investment, and if there are any financial lapses. Once the evaluation is completed the ratings companies issue ratings, such as AAA, AA, or A- that allow you to easily compare the carriers. Ratings services periodically update their ratings, as conditions change. Ask your agent for more information. The most reputable ratings agencies include:
- A.M. BEST
- Standard & Poor’s
- Moody’s
- Weiss
- Duff & Phelps
Keep in mind that different agencies may assign the same carrier a different rating. You should feel confident in choosing among those carriers that are consistently ranked in the top quartile by each agency.
If you have any doubts about the policies that your agent has presented, don’t hesitate to get opinions from other agents. There is no such thing as a dumb question, so ask questions until you can make an informed decision. Buying the right insurance policy may be the most important thing that you ever do for your family.
*The material provided in this article is for informational purposes only. We do not provide legal, tax or accounting advice. Please contact your own advisers for legal, tax and accounting advice.
