How Safe Is Your Insurance?
April 21, 2008 – 7:26 amHow safe is your insurance? After all, you’ve been paying those premiums for a long time now. Wouldn’t it be disastrous if your insurance company was unable to meet its obligations?
Most people seek out insurance companies with strong financial ratings in order to decide if an insurance company will be able to meet the obligations of its’ policies. That’s what I did when I purchased life insurance for the first time two years ago (right after I got married). I shopped the internet, spoke with some people informally, and then went with an independent insurance broker that did a search of the strongest companies (A+) and best rates for 20 year level term life insurance. My wife and I had a medical exam, signed what seemed like 2000 forms, and then mailed in our premiums.
One of the books I’m currently reading is “This is Not Your Parents’ Retirement” by Patrick Astre (aff link), and he mentioned something I had never heard of before. One of his chapters mentions that it’s best to buy life insurance from companies in New York state. According to the author, New York state has regulations that are much more stringent than other states, such that many firms launch wholly owned subsidiaries specifically so that they can sell insurance in NY [otherwise their entire insurance company would have to meet the strict requirements of this one state]. These companies are required to make mandatory contributions to a NY state department insurance controls fund that is designed to provide protection to consumers if an insurance company goes out of business.
I’m no insurance expert, but I do know that the insurance industry is highly regulated and most states have guidelines that must be followed. I’ve even heard that corporate buyout targets sometimes purchase an insurance company in an effort to ward off hostile takeovers due to the approval and regulatory requirements placed on insurance firms. The fact that this author to specifically call out NY State seems worthy of at least a little further investigation to me.
Astre goes on to say that he would rather have a client purchase insurance from a lower-rated NY state provider than a better-rated firm from another state, and that this coverage also includes annuities and long-term care insurance policies (and probably all insurance-type products I would guess). The only requirement according to the author is that you have to have the insurance documents signed and witnessed in NY state, but you don’t have to be a resident of NY state.
I’m sure traveling to NY State may be costly if you life far away (like I do), but it’s something to consider if the stakes are high enough. For me I’d I think I’m less concerned with life insurance at the moment because I’m still relatively young and could reapply for insurance pretty easily. Later in life, however, if I was planning to invest a large amount in an annuity this would definitely be worth investigating further. After all, I’d be counting on that cash flow for the rest of my life, so I want it to be as secure as it can be!
I’ll have to bring this up with my insurance person the next time we meet and see what he has to say.
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