Life insurance companies that have not been around more than 20 years may not be reliable. Even the ones that have been around 30 years or so need to have very good credit ratings and business models for you to expect them to be around in 30 years or so to pay a possible death claim.
To determine whether an insurance company is reliable, it is necessary to look at their financial strength rating. A financial strength rating is a letter-grade provided by major rating services, such as Moody’s Investor Services, Fitch Ratings, and others. For example, Moody’s Investor Services ratings are as follows: AAA, AA, A, BBB, BB, etc.
However, these rating services have come under great scrutiny lately, since they only rate companies that pay them to, and it is wise to perform your own research as well. There are several websites that provide statistics and other information about insurance companies.
Be mindful that even though life insurance companies have very significant reserve requirements that make them a cornerstone of the financial services industry, it is still possible for them to pass off their liabilities to less stable reinsurance or shadow insurance companies.
You need a trustworthy company that will still be stable in 30 years or more. The longevity of most S&P companies, with ratings below a BBB may surprise you with its brevity.
In addition, if you decide to use an agent, be sure that your agent is trustworthy and not trying to sell you a policy that will benefit them more than you. Many life insurance companies pay the agent a large portion of the entire first year premium, even on large cash-value policies, so be aware that a lot of money may go straight into the agent’s pocket.
If you are fully aware of this, and the outlay down the road still looks agreeable, don’t let this deter you, since it is part of almost every life insurance contract’s design.
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