Research life insurance before buying policy
Few people are diligent when considering their auto or home insurance providers, but surprisingly, statistically more people check out the long-term financial health of potential providers while making whole life insurance comparisons, presumably because they expect to live a good long time before their policy is cashed out and they want their life insurance company to be equally long-lived. Fortunately, it's possible to check into the business status of all types of insurance carriers, and the process is relatively simple.
To make the research process easiest, think of it this way: As a background check might evaluate you and the risk you would bring before doing business with you, someone might research your financial health and legal background. How would they go about doing that? Probably by first checking your credit rating. And how do they do that? By going to one of the companies keeping track of your credit gaffes and rating category. You'd probably want this person to get more than one opinion about your credit, particularly if you have a black mark somewhere out there.
In this case, you are performing the same background check, only in reverse-on your insurance company, before you purchase a whole life insurance premium.
Many companies put out reports that evaluate the performance of insurance companies, but five reporting companies are the accepted as industry standards: First are Moody's, Standard & Poor's (also known as S&P), and Fitch, all of which have their own general rating systems for companies in a variety of industries. Their ratings are often used by investment firms and individuals doing due diligence research on companies before making investments. For example, news might come out that two airline giants plan to merge; the mentioned rating companies might post updated ratings of each airline's financial standing, as well as an analysis of the industry in general, so that stockholders could decide whether to hang onto, sell or buy stocks in the airlines. All three of these companies have a special focus on financial institutions, and the insurance business falls into this category. A.M. Best and Weiss, the other two of the big five, are focused solely on financial institutions and rating their health.
It's easy to become intimidated by reading reports about the health of the insurance industry in general, and comparing ratings can be confusing. Each rating company uses a different system and scale, and as company ratings are in a constant state of flux, their ratings are updated often, so it's important to read the details about how companies are rated. Also, just as you might want a credit agency to look at more than one report on your own credit, be sure you look into more than one rating for each insurance company you check. Finally, it's also wise to check into the national or state-wide database of complaints filed against insurance companies and see whether the companies you are considering have had whole term life insurance policy complaints filed against them-just as a background check would reveal any negative legal events about you.
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