What if Your Life Insurance Company Doesn’t Make it?
At their heart, life insurance policies are nothing more than a promise on a piece of paper made by your insurance provider. They promise to make sure your beneficiaries receive an agreed upon benefit should you pass away. However, insurance companies are only as good as their promise, so what happens if your provider goes under? With the recent trouble surrounding the mega insurance company, AIG, many people are wondering this very question right now. While their concerns are certainly valid, most policyholders should get by unscathed. Here’s a look at what happens and what you can do if your life insurance provider doesn’t make it.
What Happens if Your Insurer Doesn’t Make it?
- Fortunately, you won’t be left out completely in the cold if your life insurance provider doesn’t make it for some reason. That’s because life insurance companies are regulated by state governments and generally require that they participate in a state guaranty fund or association. The purpose of the state guaranty fund is to make sure policyholders still receive their benefits if an insurance company gets shut down.
- If you don’t have any outstanding claims and the state guaranty fund won’t sufficiently cover all of your death benefits, you may consider seeking new coverage from a different provider. The problem is you may be significantly older now than when you purchased your policy, making it more difficult and more expensive to get a new one. Also, be wary of agents or financial advisors that push you in this direction – often they’re just looking to cash in on a new commission.
- Sometimes, when a life insurance company goes under, they’re able to transfer their customers to a more stable insurance company. Usually, you get to keep your old insurance policy exactly as is with your new provider, though it’s possible that your premiums could increase. Make sure to read all the fine print if you’re transferred to a new provider, they may try to sneak in new exclusions or provisions in your policy.
- While it may be too late to do it now, you should always make sure that your provider is financially sound when you purchase a new life insurance policy. There are several different ratings systems for insurance companies that can be found online. You can also look for customer reviews to make sure your company doesn’t make people jump through hoops to get their benefit.