Life insurance companies, even highly rated companies, come and go. While some sell their blocks of business because they’re not competitive anymore, many decide to sell because another company offers them a huge amount of money. Protective Life made the board of directors of MONY very happy when they were offered over $1 billion.
What happens if a life insurance company where you happened to have all of your family protection decides to shut the doors? What if it happened to be the company that had sworn it would fend off disaster for your family if you were to die prematurely? Back in 2008 Enron (not an insurance company) just disappeared. Poof! Gone! Is that the same thing that happens when an insurance company goes under?
The good new is the answer is no. There really isn’t any way to compare Enron with, say, Empire General who went out of business a few years ago. A lot of my clients had policies with them so I got a lot of calls about what was going to happen. The truth is that Protective Life picked up their entire block of business and kept it intact, didn’t change any of the terms (they couldn’t by law) and those policies are fully in force today. Maybe that wasn’t a fair example because Empire General was part of the Protective Life Group to start with. But Protective also purchased MONY as noted above. The same held true for Federal Kemper when they were purchased by Zurich, Zurich when they were purchased by Chase, US Financial when it was purchased by AXA Equitable and Travelers when they were purchased by Met Life.
With insurance companies the block of business has value because of the cash flow from premiums. I guess there should be some distinction drawn here between term insurance and non guaranteed cash value policies. With term insurance there aren’t any moving parts. Premium and death benefit. If another company is looking at buying a block of business, a lack of moving parts, bells and whistles is a good thing.
With cash value policies that are not fully guaranteed, I think some concern about what happens if the company goes under is warranted. While it is as close to an absolute that the block of business will be purchased if it is all fully guaranteed policies, I honestly can’t think of a reason that a company would buy a block of non guaranteed business unless the downside on that part of the business was dwarfed by the upside on the guaranteed portion.
Bottom line. If you have a guaranteed level term policy I wouldn’t worry about your company. The only thing that will change if they go out of business is who you make the premium check to. By law everything else, the premium, term length and death benefit, has to remain the same. If you have a variable universal life, or a universal life or whole life policy that is dependent on assumptions and not guarantees, I would switch to something fully guaranteed before you have to find out if it will survive your company’s demise. If you have questions or want to know what would be involved in moving your life insurance to a fully guaranteed policy, call or email me directly. My name is Ed Hinerman. Let’s talk.