How to choose a life insurance company.
It cannot be that difficult to choose a life insurance company when they all do the same thing. They pay a death benefit if you die. Just buy the cheapest one, right? It might not be quite that easy. However, choosing a life insurance company can be easier with a little guidance. I will show you a simple and dependable way to choose a life insurance company.
I am going to assume that you have already decided how much life insurance you need and the type of life insurance you want to buy. If you are not sure, read my blog post, How much life insurance do you really need. Do you need help deciding what type to buy? Most people buy term life insurance. Although, if you want direction on the different types of life insurance available you can read, A Comparison Between Term and Permanent Life Insurance Finally, you need to decide what life insurance company from which to buy a policy.
Unless you are buying life insurance from an agent that works for one company, you are probably going to be presented with a list of life insurance companies from which to choose. No matter who you buy life insurance from there is a simple and dependable way to decide which one is the best to buy.
Before we get to that point, let's be sure we are talking about apples to apple comparison. Three factors have to be the same; the amount, length of time and the individual health rating. When comparing life insurance, these three factors are important enough to elaborate briefly. When referring to face amount, an insurance company is stating the amount of the life insurance death benefit. The length of time is how many years the policy will last. Term life insurance policies are annually renewable or period-specific. The annually renewable will increase in cost each year. The period-specific policies are level for a specific period, ten years, fifteen years, twenty years and thirty years term life insurance policies.
The third factor that needs to be the same when you are comparing life insurance policies is the individual health rating. Health ratings are important because that is how life insurance is priced. Higher policy ratings are more desirable because they translate into a lower cost life insurance policy. All life insurance companies have a rating called standard issue. Depending on the insurer, there will be two or three ratings above the standard issue. It may be called preferred, preferred plus or super preferred. Life insurance companies use several different descriptions for the top rating issues; it is not a universal terminology. Below standard, there can be up to eight levels. These are called table ratings. For example, the first level below standard would be called a table one rating. Each table of one through eight increases the cost of the life insurance. There are other pricing methods used with life insurance policies. However, those go beyond the scope of this article. Health ratings will have a significant influence on the price of a life insurance policy. That is why when you compare policies, they must be equal for a fair comparison.
So, with all factors equal, how do you know the life insurance company that you select to protect your family will be in business if you die? The answer to how to choose a life insurance company is select the one that has the best financial strength, and it fits your needs. It is important to note that the highest financially rated company might not be for you if it does not sell the type of life insurance you need. Beyond this fact financial strength is a key aspect of selecting a life insurance company.
The best way to understand the financial strength of a life insurance company is to turn to companies that specialize in assessing life insurance company financial strength. There are four main companies that rate life insurance companies; A. M. Best, Standard & Poor's, Moody's Investors Service and Fitch Group. These companies use their proprietary research strategies to rate life insurance companies. As sophisticated as rating companies may be in their research, they could be wrong at times. In 2008 during an economic, financial crisis; Standard & Poor’s and Moody’s did make mistakes and had substantial government penalties (Scully, M., McLaughlin, D., & Bloomberg. 2017, January 13). That does not totally invalidate the use of Standard & Poor’s and Moody’s, however it does give a good reason to compare their ratings with other rating companies.
There is an evaluation system that does use the information from all four companies to rank life insurance companies. The system is called a Comdex Calculation developed by EbixExchange (Ebix Exchange,n.d.) All the companies that rate life insurance companies use a letter ranking system of A, B, C, D, & F with some plus and minus variation. What EbixExchange has done is assigned a numerical representation to each alphabetical rating. The result of the calculation is a number assigned to each life insurance company between zero and one-hundred.
Not all life insurance companies are provided with a ranking. For EbixExchange to provide a Comdex Calculation, life insurance companies must be rated by at least two rating companies. At the end of this article, I will provide a complete list of the companies that Advice 4 Life Insurance can represent along with their rating and ranking. If you see a blank where the Comdex Calculation should be, that means that life insurance company only has one rating.
Hopefully, this information will help you in selecting a life insurance company to protect those that you love. In some instances, clients want more detailed financial information on a life insurance company such as the quality of stocks and bonds in which the insurer invest. If you want more detailed information on the financial health of a life insurance company I will be glad to provide it. If I can help you with questions, please feel free to call, email or text. To see a list of life insurance companies we can represent, along with financial ratings and Comdex Calculations that are available follow this link.
By Van Richards
Van is the founder of Advice4LifeInsurance and Advice4Retirement. You can contact him at van@advice4lifeinsurance.com Follow on Twitter @VanRichards or Facebook at https://www.facebook.com/advice4lifeinsurance/ and https://www.facebook.com/Advice4Retirement/
References
Ebix Exchange. (n.d.). VitalSigns - The Comdex Solution. Retrieved from http://www.ebixlife.com/vitalsigns/comdexconfus.aspx
Scully, M., McLaughlin, D., & Bloomberg. (2017, January 13). Moody’s reaches $864 million subprime ratings settlement. Retrieved from https://www.bloomberg.com/news/articles/2017-01-13/moody-s-to-pay-864-million-to-settle-subprime-ratings-claims
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