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How Do I Know that Life Insurance Companies are Reliable?

The life insurance industry is an important part of the financial services sector, offering peace of mind and financial security to policyholders and their beneficiaries. However, with a plethora of life insurance companies in the market, determining their reliability is crucial, especially since these policies often span decades. How do we gauge the reliability of these companies? What markers should we look for to ensure that a company will stand the test of time and deliver on its promises when it matters most? Let's delve deeper into these crucial questions.

Evaluating Longevity and Credit Ratings

The first factor to consider when determining the reliability of a life insurance company is its longevity in the industry. Companies with more than 20 years of experience are often more reliable than newcomers. Those with a track record of 30 years or more are generally considered established entities. However, longevity alone doesn't suffice. A robust business model and excellent credit ratings are equally crucial. Companies with ratings below BBB from the Standard & Poor's may lack financial stability.

Understanding Financial Strength Ratings

Financial strength ratings are valuable indicators of an insurance company's ability to meet its policyholder obligations. Rating agencies such as Moody's Investor Services and Fitch Ratings assign letter grades that help gauge the company's financial health. Ratings range from AAA, denoting the highest quality, down to BB, indicating speculative elements. Nevertheless, a word of caution is necessary. Rating services have faced criticism for providing ratings only to those companies that pay them. Hence, it is vital to supplement these ratings with personal research.

Leveraging Online Resources for Research

Several websites offer comprehensive statistics and information about insurance companies. Using these resources, you can delve deeper into the company's financial health, claim settlement ratios, customer service ratings, and more. This can provide a broader perspective on the company's reliability, helping you make informed decisions.

Assessing the Role of Reinsurance and Shadow Insurance Companies

Life insurance companies are known for their significant reserve requirements, making them seem like immovable cornerstones of the financial services industry. However, it's essential to be aware that some insurers may transfer their liabilities to reinsurance or shadow insurance companies. While not necessarily a cause for alarm, it's worth scrutinizing these reinsurers' stability to ensure they don't compromise the parent company's solidity.

The Agent Factor: Trust and Transparency

Choosing a trustworthy insurance agent is as important as selecting a reliable insurance company. While agents play a key role in simplifying complex insurance jargon and helping you choose the right policy, be cautious of those who might prioritize their commissions over your best interests. A substantial part of the first year's premium on large cash-value policies often goes to the agent. Awareness of this fact allows you to make informed decisions and ensure the policy’s long-term value aligns with your financial goals. Determining the reliability of a life insurance company involves assessing its financial health, understanding the implications of its business practices, and carefully selecting an insurance agent. A blend of these factors can guide you towards a reliable life insurance company that can offer you the peace of mind that comes with knowing you and your loved ones are financially secure.


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.

Is Life Insurance a Good Investment?
What if My Life Insurance Doesn’t Pay the Death Benefit to My Survivors?

Disclaimers and Limitations

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