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Question for the Money Doctors

Question submitted on May 30, 2012.

Question

How do you determine if a life insurance company is better than another? I know they are rated and I have a policy with Banner Life, which is now Legal and General America. The ratings are not as good as TIAA and I''m wondering if I should switch companies. The premiums are twice to three times higher with TIAA.

Answer

It is important to know the type of life insurance you are buying. For example, if you are buying five year term life insurance, the financial health of the life insurance company is not as important as it becomes if you are buying permanent life insurance where the insurance company must survive you. Many times an insurance company that does not charge enough, i.e., the cheapest company, will not be profitable and may not survive. That alone may be a red flag. If your insurance must last more than a few years, I recommend that you stay with the top rated companies. That said, most states do not let insurance companies fail. The state steps in and makes the remaining life insurance companies buy the bankrupt company''s book of business and honor those policies. 


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