A big
part of your decision when
comparing term
life insurance plans is of
course the premium. In fact, this
is probably the biggest factor since we
narrowed down the selection to strong
carriers. The final piece usually
deals with the life carrier ratings by
the major rating agencies which we list
next to each plan. It's important
to keep in mind that most States also
have a Guarantee Fund to further
safeguard your coverage. Let's
take a look at these funds and how they
factor into your plan selection.
Life
insurance is a bit trickier than other
types of insurance (outside of Long Term
Care) in that the expected (although
unwanted) benefit may be decades in the
future. If a carrier offers a
really low rate (too low) which is
inadequate to successfully manage the
claims in the out-years, this offers
little help to you. For this
reason, we really try to offer only the
strongest carriers and a wide selection
of those companies. For smaller
amounts of term
life coverage ($300K and
under), the State Guarantee Funds pretty
much protect most of your benefit in
case of a catastrophic situation
occurring within your chosen life
carrier. Could this
actually happen and why?
A
quick refresher. The carrier is
trying to spread risk among as many
people as possible for the lowest
possible (must cover overhead, claims,
and return to shareholder if necessary)
life insurance rate to each policy
holder. They have to manage this
delicate balance of income versus
expense and still keep reserves as
required by the government and
life carrier
rating agencies in order to
have a good rating. There are
freak occurrences or just plain bad
management of these variables.
As for the first situation, you could
have catastrophic claims experience
resulting from a much higher percentage
of subscribers that pass away. A
single digit increase in this percentage
can definitely affect the overall
financial performance of a carrier.
That's why carriers are required to keep
reserves. The carrier
could also have miscalculated their
actuarial tables which is how they view
the probability that a given person
(age, gender, health class, etc) will
pass away. On the second front,
the carrier may just have underpriced
their plans hoping to gain market share
and deal with the resulting claims later
with a wider base. It's a
gamble and not one you want to be on the
wrong side of as a subscriber.
That's where the guarantee funds come
into play. Each State has certain
amounts of life insurance benefit they
will guarantee. This functions
very similarly to the FDIC insurance for
deposits in a bank. These
amounts typically run around $300K
maximum death benefit for one specific
person's life. Essentially, that
means per person and it's the aggregate
of all insurance. Meaning, you
can't guaranteed $300K with one carrier
on a given person and also another $300K
through a different carrier/policy on
that same person. It's important
to check on your particular State's
allowable amount here at the
National
Organization of Life and Health
Insurance Guaranty Associations (NOLHGA,
13873 Park Center Road, Suite 329,
Herndon, VA 22071).
http://www.nolhga.com/factsandfigures/main.cfm/location/stateinfo
This link will allow you to double check
how much your State guarantees and we
advise this before
purchasing term
life insurance.
Keep in mind that most people quote
higher amounts than $300K so health
carrier rating is still important.
Protecting $300K of a $1M policy from a
shady carrier is not a good strategy.
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