• Joshua Crowe, CONTRIBUTOR
  • Hi, I am Josh Crowe the owner and founder of Sunpath Financial, a retirement specialist firm in Newport Beach. I hope you find our website and services useful!
  • Opinions expressed by Sunpath Contributors are their own.
April 9, 2019 views: 30,239

As with any insurance product, shoppers are looking to pay less for the same coverage regardless the carrier, but that can lead to severe financial loss and suffering if the company should become insolvent.

This article was written to help you understand the key metrics when deciding on which company to purchase your coverage from.

Financial Rating Companies

A financial rating company’s job is to assess the quality of each and every life insurance company and report it to the public. There are several rating companies, but the largest are Standard & Poor, Moody’s, AM Best, and Fitch.

FACTORS CONSIDERED

Financial rating companies address the following areas when assessing a carrier:
1. Company Strength
2. History of Paid Claims
3. Conversion Period
4. Innovative Products
5. Diverse Product Line

Company Strength

These are the 10 areas factored during the strength evaluation:

Asset quality Are there buildings or equipment carrying enough value to be used as collateral if the borrower defaults.
Quality of the management team Is the team led by smart, visionary people who have the experience and know-how to run a company.
Quality of the business Is the business profiting. Are sales growing. What are the unsystematic risk involved.
Financial Balance Sheet How much have they borrowed. Can they service this debt. What’s the existing monthly payment on the money borrowed.
Political risk If the country a company is in turmoil, it has a less chance of meeting its financial obligations.
Regulatory risk If the Federal or State are enacting regulations that cause a company to create new, more difficult or time consuming methods of carrying out business.
External risk A threat of war of trade sanctions.
Fiscal risk Government is spending more than it’s borrowing.
Economic risk Is the productivity of the country slowing down, is the GDP reducing.

History of paid claims

Paid claims relate to how and when a life insurance company makes payment to beneficiaries after the death of the insured. There are two types of life insurance claims.

Incontestable claim:

Is when death occurs after the contestable period stated in the policy. The most common contestable period is suicide within two years of the policies anniversary date. After two years, the policy is incontestable, meaning the life insurance company must pay even if the insured commits suicide. Incontestable claims normally payout quickly, typically 2-4 weeks after the death certificate is received.

Contestable claim:

When additional information is required from the insured, or a third-party to process a claim, this is known as a contestable claim. A claim is normally considered contestable if the insured dies within a specified time from the effective date of the policy, or any attached policies such as accidental death benefits, etc.

When a claim in contestable, the beneficiary may need to complete and submit a medical release authorization form giving authority to the insurance company to further investigate the cause of death.

This doesn’t mean the claim will be denied, but the insurance company will investigate the death and thoroughly examine the application for inaccurate information. If nothing turns up in the investigation nor application, the company will process the claim.

This process can take as little as 2-4 weeks, or up to several months depending on the length of the investigation.

Conversion options

Grants the insured the option to convert term coverage to permanent coverage without taking another medical examination. The conversion period is the time you have from your policy’s anniversary date to the conversion option expiration date, set by the insurance company.

This period varies between companies, with some insurers offering conversion up to full-term, but the majority set max age limits, normally 65. For example, if you buy a 20-year term policy at 55, and the conversion is to full-term, or age 65, you only have 10 years to convert because you will turn 65 before the full 20-year term.

Planning to convert? Be sure to choose the right company!

If you’re planning to convert in the future, consider a company that has a variety of permanent life insurance options. You’ll find that most companies with long conversion options usually lack a wide range of permanent life insurance options. The convertibility option can be found in the policy or product brochure.

Innovative Products

Markets evolve and people’s needs change, so the products and marketing messages built 100 years ago aren’t current.

The marketing message of the century, and the one still used by insurance carriers today, is geared towards the “bread winner”, one that speaks predominately to the male market.

Things are different in the 21st century, as more woman have joined the workforce. This creates a unaligned message to consumers, but unveils a great opportunity for innovative life insurance carriers to begin building and/or marketing products to those consumers. As a potential insured, be sure to research new products.

Diverse product line

You’ll come across a myriad of options when looking for life insurance. The primary types are term and permanent, both have dozens of subtypes, and although confusing, it benefits the insured.

Rather you buy term or perm, you’ll want to look into their life insurance rider options. Keep in mind, the more diverse the product line and rider options, the higher the overall premium.

So if you’re looking for a vanilla life insurance product, you’ll want someone like Banner or Ohio Life.

Wrapping things up

Now that you understand the key metrics used in the assessment of an insurance company, you’re ready to begin researching them.

As a rule-of-thumb, you should stick with company’s that score an 89 on the comdex or greater. Don’t forget to research the market for innovative products, and always start with big companies who offer a large array of policies and riders.

If you find a product or rider you like, research some of the mid-size life insurance carriers to see if they offer the same or similar features as they’re likely to be cheaper.

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