Am I being overly cautious in worrying that the insurance company I’m using might go under when I really need it?
I purchased a comprehensive life, disability, and critical illness policy from a smaller insurance provider because they were the only ones willing to insure me given my chronic health conditions. I also opted for a high-limit income replacement policy from them. I’ve had this coverage since 2022 and, ideally, I won’t ever need to file a claim.
Recently, I was chatting with a friend who has a similar policy with a well-known national insurer. They suggested that I made a mistake by choosing a high premium, high payout policy from a smaller company. Is there any validity to my friend’s perspective?
It’s understandable to have concerns about the stability of an insurance company, especially when you have a significant investment in a policy. Here are a few key points to consider regarding your situation:
Financial Stability: Smaller insurance companies can carry more risk compared to larger, established ones, primarily due to their financial resources and market share. However, many smaller companies are financially sound and highly rated by independent agencies that assess their stability and ability to pay claims. Research the insurer’s financial ratings through agencies like A.M. Best or Moody’s to get a sense of their reliability.
State Guaranty Associations: If the insurance company were to go under, state guaranty associations can provide a safety net. These associations typically protect policyholders as much as possible up to certain limits, depending on the state laws. This can offer some reassurance, but it’s essential to check the specific coverage limits in your state.
Policy Needs and Risks: Your health problems may mean you’ve tailored your insurance needs in a way that other companies couldn’t accommodate easily. While your friend’s advice is rooted in the idea of risk management, you made a choice based on your specific circumstances. It’s crucial to weigh the benefits of having coverage against the potential insecurity of a smaller insurer.
Diversification: If you’re still concerned, you might consider diversifying your insurance coverage by exploring additional policies from more established insurers, if feasible. This could provide a broader safety net while still maintaining your current policy.
Regular Reviews: Periodically review your insurance needs and the financial health of the company. If at any point you feel uncomfortable with your current insurer, you might explore alternative options or even consult with a financial advisor or insurance expert who can give you tailored advice based on your situation.
Ultimately, while your friend’s caution is valid, the decision should be based on a combination of the insurer’s reputation, your comfort level with risk, and your individual needs.