How to Choose a Life Insurance Company: 5 Questions to Ask

Insurance, Life Insurance
How to Choose a Life Insurance Company

Hundreds of life insurance companies do business in the United States, from big household names to small regional players. And most of them offer similar types of life insurance, such as term, whole, universal and variable life insurance.

So how do you choose between them? Here are five questions to ask about a company before you buy.

How financially solid is the company?

It’s important to choose a financially strong life insurer. You want the company to be around to pay the death benefit to your beneficiary, whether you pass away in five years or 30.

Look up financial strength ratings to find out how stable the company is. Independent rating firms, such as A.M. Best, Fitch Ratings, Moody’s Investor Services or Standard & Poor’s Ratings Services, issue grades for insurance companies. Keep in mind that each firm has its own rating system. An A+ is the second-best rating from A.M. Best, and the fifth-best rating from Fitch. You can see the ratings for free on the firms’ websites, but you might have to register first.

Don’t judge a company’s stability by its size. Most of the top life insurance companies have been around for a long time — some for more than 150 years — but many small- to medium-sized companies have been in business for just as long and have solid histories of meeting financial obligations, according to industry group Life Happens.

What is the company’s track record?

Check with your state insurance department to get a glimpse of how well a life insurance company serves its customers and lives up to its promises. Charged with regulating the insurance industry, insurance departments keep track of and investigate complaints they receive against insurers. Those may include disputes over claims, policy cancellations, premiums, sales misrepresentations or other issues. Most departments post reports on their websites, showing the number of complaints for each insurer, relative to their number of customers.

You can also look up complaint, licensing and financial information by company on the National Association of Insurance Commissioners website.

What products are available?

Review the company’s life insurance products to make sure it offers a good selection of the type you want to buy, whether that’s term or permanent life insurance, such as whole or universal life.

Some insurers offer innovative products that might appeal to you. For example, John Hancock has term and universal life policies that include a discount if you exercise and wear a Fitbit tracker to prove it.

Is the insurer a mutual company?

Unlike publicly traded insurance companies, which are owned by stockholders, mutual life insurance companies are owned by their policyholders. As a result, if you buy a permanent life insurance policy through a mutual company, you can receive dividends — a share of the company’s surplus revenue.

Each year the mutual company’s board of directors decides how much to distribute to policyholders in the form of dividends. You can take yours in cash, use them to repay policy loans or apply them toward premiums.

Keep in mind that term life policies aren’t eligible for dividends, and dividends are not guaranteed even for holders of permanent policies. Whether a company pays dividends shouldn’t be a make-or-break factor in your decision, but it’s something to understand as you compare insurers.

How do the rates compare?

“Underwriting guidelines” vary widely by company. Insurers use these to determine whether to sell you a policy and how much to charge. If you get turned down or are quoted unaffordable rates by one company, you might have better luck with another. Compare life insurance quotes among several competitors to see how they stack up.

» COMPARE: NerdWallet’s life insurance comparison tool

Finally, as you research life insurance companies, be aware that different companies can have similar names, so it’s easy to confuse them. Make sure you know the full name and home office location of any company you consider, the Insurance Information Institute advises.

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: bmarquand@nerdwallet.com. Twitter: @barbaramarquand.


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