Picking the Right Life Insurer to Avoid Pitfalls

Choosing the right life insurer is just as important as getting the policy in the first place.

As it stands today, around 1,000 life insurance companies sell the product in the U.S., however many are members of groups of companies and really do not compete with each other. By being separate, it allows a group to offer its products through individual distribution channels, to more efficiently reach the regulatory requirements of particular states, or to meet other organization goals. In the most recent analysis, there are some 300 company groups.

For those not aware, not all groups have a company licensed to do business in each state. Consumers should purchase from a company licensed in their state, due to the fact they can rely on their state insurance departments to step in and assist if there is an issue.

In the event an insurer becomes insolvent, the individual’s state life insurance guaranty fund will assist only policyholders of companies it has licensed.

If you are purchasing a life insurance product for the first time, keep several factors in mind:

First, note that many, but not all companies offer a broad array of policies and features, so select a company offering the product and features to meet your needs.

Secondly, given that life insurer names can be confusing and different insurers’ can have similar names, be sure you can identify who exactly you want to do business with.

It is also important to locate a life insurer who provides financial solidity within its company. Given that there is no guarantee for life insurance holders like those provided for bank accounts by the Federal Deposit Insurance Corp. (FDIC). It is best to choose an insurer that is likely to be sound for years down the road. Using independent rating agencies is the best way to go about this.

Finally, be sure to look at the company’s premium and cost.

For those unaware, the premium is the cost they pay the insurer for the life insurance contract with all of its benefits.

The premium for the policy is not the same as the expense of the protection part of the policy. One policy could have a larger premium while also offering added benefits, while another could be cheaper, but offering limited benefits.

Companies should inform a consumer about the individual’s net payment cost index along with its surrender cost index. Consumers should use the surrender cost index if they are thinking of maintaining the insurance only for a set period of time. Consumers will want to utilize the net payment cost index if they expect to maintain the policy indefinitely. Typically the lower the cost index, the better for the consumer.

When selecting a life insurance company and comparing policies, it is important to compare likewise insurance plans based on a variety of factors.

At the time you choose and compare, use factors such as your age, the kind of policy and its features, the amount of insurance you are acquiring.