Shopping for a life insurance policy can be nerve-wracking. After all, unlike auto or homeowners insurance, you don’t renew your policy annually, and hopefully there won’t be any claims on it for many years. If your beneficiaries need your settlement, you want it to be there – and without a lot of hassle.
Financial strength and consumer friendliness are important factors when evaluating any insurance company, but they’re particularly important for life insurers. You also want a company with policy features that meet your needs. Fortunately, when you’re shopping for life insurance, there are many resources you can use to find the best companies and learn which ones to avoid.
Financial strength ratings
The best life insurance companies have strong ratings. Ratings agencies provide objective measures of insurers’ financial strength – in other words, their ability to meet their obligations now and in the future. A good rating is a reliable indication that your insurer will be able to pay your beneficiaries, whether it’s next week or 40 years from now.
A.M. Best is the ratings agency best known for rating insurers, but others, like Moody’s and Fitch, may also have useful information. And though agencies consider the same general qualities when assigning their ratings, they may nevertheless rate companies slightly differently. They also use different ratings systems. For example, Moody’s rates insurers from an AAA (very little risk) to a C, while A.M. Best rates from an A++ (superior) to an S (suspended).
Your life insurance company’s financial strength is important – but it won’t help you if the company makes it difficult for your beneficiaries to collect on your policy, or for you to make changes to it. Having a solid customer service record is essential.
While you can’t know for sure if your company will give you problems down the road, looking at its history of customer complaints can give you clues. For more information, search the Better Business Bureau and the National Association of Insurance Commissioners’ database. Your state insurance commissioner might also have records.
Ideally, your life insurer will have only a small number of complaints, and will have worked with customers to resolve past issues.
Once you’ve determined that a life insurance company can pay your claim and will treat you fairly, make sure it offers the policy features you want. If you need a policy with a particularly high payout, or would like the option to convert your term policy to a whole life policy, narrow your search to insurers with these offerings.
» COMPARE: NerdWallet’s life insurance comparison tool
A life insurance policy is a major commitment, and choosing the right insurer can take time. But for those with homes, families and other financial obligations, a solid policy is key to ensuring that those close to you are supported after you’re gone.
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