Gotta love that show Mythbusters. If I ever leave the life insurance business I could see signing on as a helper. So, let’s bust a myth about life insurance. The myth: You have to get your term insurance from a company that is highly rated. If you don’t they might go out of business and you will lose your life insurance!
First of all let’s address the rating issue. Most of the companies that you will ever be exposed to will be A rated or better by AM Best. This means they will be in the top three tiers of a 15 tier rating system. The truth is that when you get down into B and lower rated companies, the Swamp Life Of Vermont genre, you would actually be hard pressed to find one. They don’t have the competitive rates and they generally don’t have much in the way of advertising money.
So, assuming you are dealing with companies that are rated A-Excellent or better, they are financially sound and usually have a valuable block of business. Because of this, while the company may choose to get out of the business, there are hordes of other companies that will be more than happy to purchase that block of business. And the great news for you as a consumer is that by law, the purchasing company has to honor the contractual guarantees of the original writing company.
In other words it’s not unlike when your mortgage gets sold. The check may go to someone else, but the payment amount, loan length and interest rate remain the same. With the insurance, the death benefit, term length and guaranteed level premium remain the same.
Many of you have had the chance to participate in this process over the past 10 years. With each move on the chess board the group of clients has grown. Many of you may have had insurance with Federal Kemper. They were purchased by Zurich Life and became Zurich Kemper. Zurich soon decided there was some redundancy to that so they folded Zurich Kemper into Zurich Life. Chase Bank liked the looks of that block of business and purchased the whole thing. Then Protective Life came along and bought Chase Life from Chase Bank. And, if you had a long enough term to survive all of that, you now have a Protective policy with all the same benefits and guarantees you started with.
Bottom line. Steer clear of anything being sold in alleys and you should be OK. I’m not suggesting you ignore the ratings, but given that you have insurance with a reputable company, don’t lose any sleep over whether the insurance will be around when your family needs it.