Choosing a Life Insurance Provider
Let's talk about Choosing a Life Insurance Provider. There are a number of factors that go into picking the right insurance company or companies for your insurance needs. The final decision will depend on what you are trying to accomplish.
Some factors that are commonly used by advisers when consulting with clients about their insurance needs include the following:
1. Rating
Ratings help in a general way to determine which companies are the strongest financially. Most ratings systems work on an easy-to-understand alphabetical structure similar to the credit markets. So a company that has a triple-A (AAA) rating is likely to be more financially sound than a company with a B rating. These ratings involve the opinions and judgments made by the ratings services.
There are 5 key rating services in the market today, including Standard and Poor's, Dun and Bradstreet, Weiss Research, Moody's Investors Services and A.M. Best. The issue is these various agencies have different scales with different letter ratings that do not necessarily correspond from one agency to another. In addition, not all insurance companies have ratings from each of the agencies.
In addition, there is a rating scale called Comdex. This places the company on a percentile ranking from 1 to 100. An insurance company with a Comdex Score of 90 would place it in the top 10% of all companies in financial strength. This percentile ranking has greatly simplified the understanding of all of the various ratings for the consumer. A Comdex score of at least 75 is desirable.
2. Underwriting
In addition to ratings, another key factor in your decision will be to look at how each insurance company rates you as the insured person. This is important because the better the rating you are assigned, the lower the insurance cost.
Some companies, often those with higher credit ratings, are very selective about who they select to insure. This results in a lower claims and higher profit for the company. Other companies specialize in insuring people with health problems. These are companies that are generally charging higher premiums to compensate for the increased risk.
If you are in poor health, your choice of carries may be limited.
3. Insurance Pricing
The actual pricing offer you receive for your insurance is also a factor in choosing a company. In larger cases, you will want to make sure that your under-witting file is seen by more than one company so that you will receive competitive bids. As long as the company with the lower premium meets the minimum rating screen that you and your adviser have established, it will make sense to go with the lowest premium possible.
4. Cost and Internal Rate of Return
A Calculation of internal rate of return (available from most companies as part of their illustration) will help you to compare one policy illustration or design with another. Because insurance costs, crediting rates, expenses, and other moving parts in an insurance contract vary from company to company, a way to compare the whole picture is to look at the death benefit at a given point in time relative to the premiums paid to that point in time. A good place to start is to look at the period of time around your life expectancy. If one policy shows that the internal rate of return (IRR) of 8.5% at life expectancy and another is showing an IRR of 6.8%, you will want to explore the policy features that are creating the difference.
In the end, your choice of companies is likely to be driven by a combination of all these factors, resulting in your choosing a company that has good ratings, offers a product that fits your needs at a price you can afford, from a company that has a good financial track record.
If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website www.orlowskywilson.com.