Most people get life insurance to ease the pain of their loved ones in light of an untimely death. They have to replace lost income, settle their estates, plan for college, and give their family the financial means to survive. The need for life insurance is almost always universal and that is why having a great life insurance company is extremely important.
*Check out our BLOG to see the different scenarios and needs for life insurance
One of the most important questions that must be asked when comparing life insurance companies is, “Will this company pay my benefit, in full, at the time of death?” This question holds a great amount of importance because your loved one's futures depend on the death benefit and ultimately, the life insurance company.
When you purchase a life insurance policy you want to make sure the company will be able to pay the death benefit to you heirs in a timely manner. A reliable life insurance company will have excellent operational practices, be reliable, and represent something that you are comfortable with.
Life insurance policies will last anywhere between 1-30 years for term insurance plans and your entire lifetime for permanent life insurance plans. Having a company that will be in the business during the life of your policy is essential. Some insurance companies, even if they are larger companies, may not have the same experience as a more mature and well established company. With that being said, there are also many newer companies that have strong portfolios and have gained much respect in the industry in a short amount of time. When purchasing life insurance you want a company that is reliable, experienced and is able to pay their clients.Where they Operate
Different life insurance companies operate in different parts of the United States as well as different parts of the world. Some big life insurance companies operate internationally and others do not. Some companies only operate in specific states. Where your life insurance company operates and the implications that come with their operating costs such as labor and real estate is crucial when determining their products costs. Sometimes it is more beneficial to work with a company that is able to provide a more cost efficient product because they have lower operating cost than the larger companies who operate out of major metropolitan areas.
When you purchase life insurance you are looking to secure your loved ones financial future. What if your life insurance company is not financially secure themselves? Both large and small insurance companies may sneak in specific clauses that may prevent some policyholder’s from claiming the death benefit. While this legally protects the company it is a terrible customer service practice. In a challenging time when the death benefit of life insurance becomes a necessity, the last thing you want to do is deal with an insurance company that does not have a high reputation in the business.
There are many sources available to double check your insurance company. You can start by looking at the customer reviews of the company or look for complaints that involve payouts and customer service. There are also many online financial rating systems for life insurance companies that can be used to judge their financial stability.
Click here to see A.M Best rating system
The two types of life insurance companies are known as “stock” and “mutual.” There are pros and cons to both types of companies. Understanding the way these companies work will help you feel more comfortable with the company you choose.Stock Life Insurance Companies
A stock insurance company is owned by stockholders, other stock, mutual companies, or a combination of these. The primary objective of any stock company is to provide profit for the stockholders. The policyholders do not share any of the profits or losses of the company.Mutual Companies
In a mutual insurance company the policyholders are the owners of the insurance company and they are considered “contractual creditors.” This clause is included in most mutual insurance company policies and enables policyholders to vote for the Board of Directors. The companies success and failures will be shared by the policyholders. Most mutual insurance companies offer their policy holder the right to excess premiums also known as dividends. This means that if losses and expenses are less than the amount of premiums the company brings in, the policyholders will receive a dividend. Since the goal of a mutual insurance company is to provide coverage at near cost, the dividend that is paid is the excess premium that had been collected.
There are pros and cons to both stock owned and mutually funded insurance companies.Mutual
When considering a mutual company the benefits are simple, the company's primary interest is the policyholder. They do not have the pressure of investors to meet short-term goals. Their goals are long-term and the policyholders are the centerpiece of operation.
The downsides of a mutual company can get complicated. As we discussed above the policyholders have the right to vote and act as the board of directors. This can be challenging for an insurance company because many policyholders do not vote and many don't have the credentials to understand what is best for the company. Also, when we look at funding, a large share of the funding for a mutual insurance company comes from the policyholders. This makes it challenging to gain funding for operations, especially in struggling times. (This is why choosing an established company with a good reputation is so important) Despite this, quality companies have provided dividends every single year, even in challenging times.Stock
Stock insurance companies provide many advantages that are sometimes overlooked. For example, having a private company allows investors that are educated in the insurance industry to have control over the company. They can also gather funding much faster through their investors, allowing them to grow more rapidly.
The cons that come with a stock-owned company are the downsides that come with any stock-owned company. Their priority is to provide profits to the stockholders and they feel the pressure of investors. This can be a good thing for the company to make changes and maintain a competitive position in the market. However, in the past, we have seen this pressure make many companies do unethical practices to meet the demands of their investors. There can also be concerns of one investor gaining significant ownership and manipulating the goals of the company.
At the end of the day, choosing a company that you are most comfortable with is the best option. Both stock and mutual companies can offer you different benefits. Understanding how these companies operate is challenging and that is why having an expert opinion is your best option.
The most important aspect of purchasing life insurance is understanding your needs and how a life insurance company will meet those needs. This is a challenging task to do especially if you are not involved with the insurance industry. There are many factors that go into purchasing life insurance and having a team that knows the ins and outs of the insurance industry will save you time and money.
When pondering life insurance companies, it all depends on the individual’s age and health status. Some companies design plans that penalizes certain health issues. As financial experts and insurance specialists, we understand how these penalties work and we will help you find a plan that makes the most financial sense, given your health status.
PFSI offers many life insurance options for our professional clients. Life insurance is a complex financial tool that can provide extraordinary benefits if managed properly. We work with 100+ top carriers of the industry to find the policy that is right for you, whatever the need or circumstance.
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