Choosing the right insurance company is no easy task, especially if this is your first-time buying life insurance. But having a financial safety net for your loved ones is an investment in your future.
We’re going to cover some key things that everyone should consider before they choose a life insurance company including:
Why Choosing a Life Insurance Company Matters
The Autumn of 2008 was a hectic time. In Kitchener, Ontario parents were sending their children to school, in rural Newcastle the apple harvest was beginning, and in New York bankers and regulators stared into the abyss of the financial system.
Credit dried up seizing the financial system, regular people were defaulting in droves across the US, and stocks were taking a nosedive. Life wasn’t looking great for your average American, even those who were invested in safer assets like money market funds.
One unexpected consequence was AIG going bankrupt because they sold Credit Default Swaps to insure Mortgage Backed Securities, which became a toxic asset during the financial crisis.
What does this all mean?
As a consumer, the policy you’ve been paying into for decades was about to be worthless unless significant government intervention took place to bail out AIG, one of the world’s largest insurers.
The bailout ended up taking place to be about $22.7 billion USD, but it was a lesson for people everywhere (including Canada) that even insurance companies have their vulnerabilities.
As you look for an insurance policy, what factors should you consider and what indicators would suggest a sound purchase? Choosing the right life insurance company will grant you much needed financial security for the events that you can and can’t predict in life.
Choose the Best Life Insurance Company
Determining the creditworthiness of an insurer is a good starting point. Standard, poor, and other rating agencies provide are ratings that indicate the financial strength of these financial firms, and many insurance carriers provide this information on their website.
During the financial crisis, companies like AIG were deemed to be highly rated by rating agencies but when the crisis hit, that didn’t prove to be true. Nevertheless, this is still a good starting point. Doing your own research, such as reading reviews and asking people you know for recommendations can also help you decide which companies are worth looking into.
Nassim Taleb’s Lindy Effect, meaning every additional period of survival can imply a longer life expectancy, can also be a good rule of thumb when it comes to determining which company to go with pending no irregularities.
If Oxford University has been around for 924 years, the Lindy Effect would imply that they may well be around for another 924 years. Using this rule, going with Manulife (since 1887) or Canada Life (1891) wouldn’t be a bad bet (though this is only a heuristic, not a rule).
However, if worse comes to worst, Assuris should have your back. Assuris is an industry-funded organization that will provide 85% of your insurance benefit (with some caveats) in case your insurance company fails. Much like Canada Deposit Insurance Corporation that insures your bank account in case the bank fails, having this backstop adds trust to an insurance firm’s offering.
Choose the Right Life Insurance Policy
Insurance is complicated and a great advisor can alleviate a lot of headaches in the process. Life insurance policy options include:
- Universal life
- Whole life
- Term life
- Critical illness
- Disability insurance
- Optional riders like long-term care, term conversion, waiver of premiums, etc.
Read a detailed explanation about the different types of life insurance on our blog here.
An advisor can ensure you’re not overpaying for coverage you don’t need while finding a customized solution for your financial situation. A great advisor should also help you understand the value of the right policy for you. Sometimes buying a policy to mitigate the financial damage done by a large, unforeseen illness or death is well worth it, especially with a family history of a specific illness like diabetes.
When you choose a life insurance policy, there are other considerations that go into the purchase apart from price. The insurance claim process, the ease of accessing help, and policy information should play a role in your decision. Keep these seven things in mind when starting your search for the right insurance company and policy.
If online review sites like Insureye go into details about specific carriers being difficult with claims, perhaps paying a little extra for another carrier with a better experience based on reviews and your advisor’s experience might make sense.
Using an online insurance broker, like Dundas Life, allows you to compare different policies all on one platform and from the comfort of your home. The best life insurance policy for your needs, not the cheapest policy, should be the determining factor in your purchasing decision. It is important to consider all your financial needs and habits so that you get a policy that covers all your bases.
What Questions Should I ask my Advisor?
Most advisors have a few go-to insurance carriers that they use for life insurance. Ask them which ones they generally use and why?
If an advisor works for an insurance carrier or works under their company, ask them to disclose how they get paid and if they get higher commissions for positioning their own insurance carrier. In some situations, you’ll find that this is the case. Be sure to ask about what carrier has the best claims experience.
The last thing you want to deal with after a death or illness is having to wait on hold for hours or be hounded by lawyers or administrators for unreasonable asks. A good insurance advisor will work with you through that process to ensure that it is a pain-free experience.
Insurance can also serve strategic purposes. As you buy a policy and foresee a change in your life within the next few years, let your advisor know. Certain policies can include features that make them more flexible at a comparable cost.
The Bottom Line
Your insurance advisor should be there to help you choose a life insurance company and ensure it is the right one for your financial plan.
At Dundas Life, we only provide quotes from life insurance companies that have strong reviews and financial health. We also work to ensure you get the best price with the right coverage for your need.
Get a free quote today from Canada’s top insurance companies. It takes just 5 minutes or less.