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Choosing a Life Insurance Company


Roughly 1,000 life insurance companies sell life insurance in the U.S., but many are members of groups of companies and so aren’t really competitors with each other. Having separate companies enables a group to offer its products through separate distribution channels, to more efficiently meet the regulatory requirements of particular states, or to achieve other organizational goals. There are an estimated three hundred company groups.

Moreover, not every group has a company licensed to operate in each state. As a general rule, you should buy from a company licensed in your state, because then can you rely on your state insurance department to help if there’s a problem. And if the insurance company becomes insolvent, your state’s life insurance guaranty fund will help only policyholders of companies it has licensed. To find out which companies are licensed in Minnesota contact the Minnesota Department of Commerce at 651-539-1600 or 1-800-657-3602 or at consumer.protection@state.mn.us.

Know Your Company

You can check the financial stability of any life insurance company through several reputable national rating companies. Some of these ratings are available at public libraries. Also you can check with the state insurance department at the Minnesota Department of Commerce to verify that the company is authorized to do business in Minnesota. Consumers with questions or concerns can contact the Minnesota Department of Commerce at 651-539-1600 or 1-800-657-3602 or at consumer.protection@state.mn.us.

There are several other points to keep in mind when selecting a life insurance company:

  • Product – most, but not all, companies offer a broad range of policies and features, so choose a company that offers the product and features that meet your needs. 

  • Identity – life insurance company names can be confusing, and different companies can have similar names. Life insurance company names often use words that suggest financial strength (such as Guaranty, Reserve, or Security), financial sophistication (such as Bankers, Financial, or Investors), maturity (such as First, Pioneer, or Old), dependability (such as Assurance, Reliable, Trust), fairness (such as Beneficial, Equitable, or Peoples), breadth of operations (such as Continental, National, or International), government (such as American, Capital, or Republic), or well-known and respected Americans (such as Jefferson, Franklin, or Lincoln). Be sure you know the full name, home office location, and affiliation (if any) of any company you are considering (for an example, click here). 

  • Financial Solidity – life insurance is a long-term arrangement. There is no guarantee for life insurance policyholders similar to that provided for bank accounts by the Federal Deposit Insurance Corporation (FDIC). Select a company that is likely to be financially sound for many years, by using ratings from independent rating agencies. 

  • Advice and service – for many people, life insurance is a strange, complex product, so that it helps to deal with a representative with whom you can communicate and who is attentive to your needs. This might be connected to the selection of a life insurance company because some agents represent only one or a very few life insurance companies. See "How do I select a life insurance agent?"

  • Claims – you may want to check a national claims database to see what complaint information it has on a company. Also, your state insurance department will be able to tell you if the insurance company you are considering doing business with had many consumer complaints about its service relative to the number of policies it sold. 

  • Premium and cost – The premium is the amount you pay the company for the life insurance contract with all of its benefits. Even for a given death benefit and type of insurance (e.g., term life), the premium can vary widely among companies, either because some companies’ policies have features that others don’t, or because some charge more than others for the same coverage.

Other Policy Considerations:

The first step in comparing policies is to make sure you compare similar insurance plans, based on

  • Your age

  • The type of policy and policy features

  • The amount of insurance you are purchasing

The premium for the policy isn’t the same as the cost of the protection portion of the policy. One policy might have a higher premium but also offer more benefits (for example, it might pay policy dividends) than another. Or both might promise dividends, but in different amounts at different points in time. In each case, the higher-premium policy might have a lower cost of protection. How can you tell what a policy’s cost is? Companies should tell you a policy’s Net Payment Cost Index and its Surrender Cost Index. Use the Surrender Cost Index if you’re thinking of keeping the insurance only for a specific period of time; use the Net Payment Cost Index if you expect to keep the policy indefinitely. Generally, the lower the cost index, the better.

Next, get answers to the following questions:

  • Do premiums or benefits vary from year to year?

  • How much do the benefits build up in the policy?

  • What part of the premium or benefits is not guaranteed?

  • What is the effect of interest on money paid and received at different times on the policy?

  • What if one company offers the lowest cost at all ages for all kinds and amounts of insurance?

  • How quickly does the cash value grow? Some policies have low cash values in the early years that build quickly later on. Other policies have a more level cash value build-up. A year-by-year display of values and benefits can be helpful. Your insurance agent or company will give you a policy summary or an illustration that shows benefits and premiums for selected years. Be sure to ask questions to help ensure you fully understand the policy summary.  Are there special policy features that particularly suit your needs?

  • Do you understand how non-guaranteed values are determined? Ask your agent how the policy is affected by interest rate changes, changes in mortality (deaths), profits of the company, changes in the value of the investments supporting the policy, and changes in other key factors.

Once You Have Selected a Policy

  • Read Your Policy Carefully before Signing Never buy a policy you don’t understand - if you are given illustrations or booklets, save these materials with your policy. Make sure you understand the guarantees in your policy and the surrender penalties if you choose to drop the policy at any time. Ask your agent or company about anything that is not clear to you.

  • Regularly Review Your Policy; Update Accordingly -- Review your life insurance program with your agent or company every few years to keep up with changes in your income and your needs. This includes a review of your net worth to reconsider the prospects your survivors may face when you pass away.

  • Consider Replacement Costs -- It may be costly to replace your insurance if you change your mind during the early years of the policy. Don’t drop one policy and buy another without a thorough study of the new policy and the one you currently have.

  • Stop. Call. Confirm. -- Before buying, be sure you are dealing with a reputable insurance agent and company. The NAIC recommends you STOP before signing anything or writing a check; CALL the Minnesota Department of Commerce, Division of Insurance at 651-539-1600 or 1-800-657-3602 and CONFIRM the company offering insurance is legitimate and licensed in the state.

More Information on Life Insurance

The National Association of Insurance Commissioners (NAIC) offers a free, downloadable guide to buying life insurance. For further information, order a copy of the “Life Insurance Buyer’s Guide” from the NAIC at www.naic.org. If you believe you have been treated unfairly in shopping for life insurance, please contact the Minnesota Department of Commerce at 651-539-1600 or 1-800-657-3602 or at consumer.protection@state.mn.us.

Source: National Association of Insurance Commissioners (www.naic.org) and Insurance Information Institute (www.iii.org).