Am I justified in worrying that the insurance company I chose might go under when I need it most?
I purchased a comprehensive life/disability/critical illness policy from a smaller insurance provider because they were the only ones willing to cover my chronic health issues. I also opted for their high-limit income replacement insurance. I’ve had this policy since 2022 and, ideally, I never want to have to file a claim.
Recently, I spoke with a friend who has a similar policy from a well-known national company. They suggested that it wasn’t wise to invest in a high-premium, high-payout policy from such a small insurer. Is there any validity to my friend’s concerns?
It’s understandable to feel concerned about the stability of an insurance company, especially when you’ve invested in a significant policy. Here are a few points to consider regarding your situation:
Financial Stability: Smaller insurance companies can be more vulnerable to financial instability, especially if they don’t have a diverse portfolio. It’s important to check their financial ratings from independent rating agencies like A.M. Best, Moody’s, or Standard & Poor’s. A good rating can indicate that the company is financially sound.
State Insurance Guarantees: In many regions, state or national insurance regulators provide some level of protection to policyholders in case an insurance company goes bankrupt. This means you might still have some coverage even if the company fails, up to certain limits.
Your Needs: If the small company was the only one willing to insure you due to your chronic health issues, that’s an important factor. Finding coverage can be difficult with pre-existing conditions, and having a policy that meets your needs may outweigh the risk of the company’s size.
Premium vs. Payout: While your friend’s point about high premiums with a small company is valid, it’s crucial to weigh that against the benefits you receive. Higher payouts might be necessary given your circumstances, and you might not have many options.
Diversifying Coverage: If you’re especially worried, you could consider looking into additional policies from larger companies that might offer lower coverage amounts or different types of coverage to diversify your risk.
Ultimately, it’s about balancing your current situation with the potential risks, and you might want to discuss your concerns with a financial advisor or an insurance expert who can provide guidance tailored to your needs.