Shop for Life Insurance: Protect Yourself

We are finding that many life insurers may not be as solid as we thought. After all, when AIG collapsed, it was rated “good”. While some of your benefit may be covered by state guaranty associations, most of this coverage falls short of what is recommended for an average family. If your policy is larger than $300,000 ($100,000 for cash surrender), you may find that you could be out of luck if an insurer goes under. You’ll lose some of your benefit.

In order to protect yourself when buying life insurance, consider these options when shopping around:

1. Consider term life. Not only is term life insurance cheaper, but the guaranty amounts provided by a state association are higher on term life death payouts than they are on a cash-building policy. My husband and I actually have cash building policies, but they are small (they’ll be enough for us to take a couple of vacations when we retire). Most of our insurance coverage is actually in term life.
2. Buy coverage within the guaranty amounts. You might have to pay a little more, but if you want $600,000 in coverage, get two different policies, of $300,000 each, from different companies. Consider making sure that your policies fall within the amounts guaranteed by the state.
3. Check the ratings. It is true that life insurance rates may not be that accurate. However, The Street offers a screener that is remarkably accurate (predicting problems with insurers well ahead of time). You should at least check to see that your insurance company has reasonably good ratings, to check that you are with a company that is less likely to fail.

image source: Wikimedia Commons