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Choosing a Life Insurance Company

I often sing the praises of our vast, friendly, and helpful Fool community of discussion boards, where you can ask questions and get answers -- and make new friends in the process. There's a tiny little downside to it, though: You can end up discovering new questions and issues to grapple with, ones you hadn't thought of before.

This may have happened to someone passing through our Insurance discussion board recently -- someone who believes in the value of life insurance for many people and who perhaps has been meaning to buy some. He or she may have learned that term life insurance is often a smarter buy than whole life (read why), but then, out of the blue, may have stumbled on this post by progmtl, who asked how he should go about choosing a life insurance company, as he was worried about the possibility of a company failing.

Fools respond
Fortunately, responses were quickly forthcoming. Here are some perspectives from board denizens:

GADawg noted:

For term insurance, the risk from an insurer becoming insolvent is minimal. First, an actual insolvency is extremely rare. Second, before becoming insolvent, a struggling company is usually purchased by a larger entity, thereby increasing the smaller company's strength. Third, every insurance company holds significant reserves in surplus to pay claims in the event of insolvency. Fourth, most states have guaranty funds ... to cover liabilities that are not adequately funded by the insurer. ... I would say that an A- [or better rating] from A.M. Best should be more than adequate for a term policy.

NoIDAtAll suggested looking into the complaints that the companies you're considering have generated. For example: "MetLife's (NYSE: MET  ) and Prudential's (NYSE: PRU  ) 2000 life complaint ratios in Iowa were very low (0.24 and 0.32, respectively), whereas Reassure America Life Insurance Company's complaint ratio in that state was 2.616 -- quite a bit higher."

More thoughts
Here are a few more factors to keep in mind:

  • You can look up ratings for insurance companies from several different agencies. Learn more.
  • The Insurance Information Institute recommends being clear on a company's name, as many firms have similar names. You might decide that you like the strength of Assurance Reliability Trust (I just made that one up), but might end up buying a policy from Assured Reliability Trust instead, by accident (I made that one up, too).

Keep learning
You can learn much more about life insurance in our Insurance Center.

Think about some other kinds of insurance, too, while you're at it. You may not have given much thought to disability or long-term care insurance, for example, but they're vital for many people. And, of course, properly insuring your property is vital, too. Take a little time to learn more and you may be very happy you did, if some calamity occurs in the future.

These articles may also be of interest:

And finally, when it comes to your investment portfolio, consider making some money by investing in insurance companies. You might do so, for example, via the Fidelity Select Insurance (FSPCX) fund, which has racked up average annual gains of 9.5% over the past five years by investing in insurers like AIG (NYSE: AIG  ) and St. Paul Travelers (NYSE: TRV  ) .

Longtime Fool contributor Selena Maranjian doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy is stored in a locked vault deep beneath the earth.

Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 12, 2010, at 6:59 AM, MoneyAdvicePro wrote:

    Thanks for the information - prior to having a baby, I never even considered life insurance. Now with someone who is dependent on me, my whole perspective has changed.

  • Report this Comment On July 29, 2010, at 9:39 AM, smithmarie1231 wrote:

    I came across this site while searching for a <a href="">Term Life Insurance Quote</a>. It is very difficult to find the best quote that fits your needs; however this site has been very informative in my process. If you are still in need of more information, check out this site, I am sure it will help you!

  • Report this Comment On May 20, 2011, at 2:06 PM, JoeBrown343 wrote:

    Insolvency isn't talked about much these days even still after AIG failed and Lehman Brothers collapsed. Although these companies also had financial investment arms, neither was an actual life insurance company so that's a mute point. When buying life insurance online or from a local agent, you'll want to make sure the insurer is financially stable. Consider researching complaints or what % of claims don't get paid out and why. These are only some of the things you should consider while deciding to purchase life insurance. If you need a place to get more information consider visiting since they have plenty of helpful resources.

  • Report this Comment On May 01, 2015, at 5:36 PM, NigelWittaker wrote:

    Funny how all of those above are just term sales mills. Sad. Anyways, if you want to talk to REAL PEOPLE who know the business, talk to these people at Life Insurance Rockstar

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