According to industry experts, it is very rare for a life insurer to go out of business or to go bankrupt. In fact, during the recent recession, life insurers performed well. They were able to maintain stability in a questionable environment.
But if a company is in trouble, they have to follow a resolution program within the state’s insurance department. The state will help to identify problems and explore possibilities. If they can turn the problems around, the company is back on solid footing.
Even in these circumstances, where the company is facing liquidation, it is important as a policyowner not to get upset and continue to pay your premiums. You do not want to cash out on a policy. You may get a quick return but you could be giving up a death benefit in return for a couple thousand dollars. And because of changes in your health condition, you may not be able to get another policy.
Work with the agent or company for the best solution for your assets. Talk to your state insurance department for updates. Many times they will find a company who is solvent if all else fails. The state guaranty funds step in quickly in the event of the unexpected and the buying company is required to honor the contracts of the old.
American International Group (AIG) is an example of how the Federal Reserve stepped in to extend billions of dollars to keep the insurer from declaring bankruptcy in 2008. Over 70 million customers in approximately 140 countries would have been affected; AIG is the largest life insurance insurer in the world. Over time, significant progress has been made to stabilize the company and restructure the assets that would have been lost.
If you are considering purchasing a policy, always check to make sure they are recommended and approved by your state insurance department. Each state is different in regulations and statutes. The National Association of Insurance Commissioners (NAIC) is a nonprofit organization that assists the states in developing rules for the industry.
There are several major rating agencies that provide opinions on an insurance company’s financial strengths to meet the claims obligations it made to you. They include: A.M. Best Co.; Fitch, Inc.; Moody’s Investors Services; and Standard & Poor’s Corp. Though the ratings are based on opinion, it is a good place to start.
Want to learn more about life insurance? Read our article The Most Frequently Asked Life Insurance Questions.