Should I be concerned that my insurance company might go under when I need support?
I bought a costly life, disability, and critical illness policy from a smaller insurance provider because they were the only ones willing to cover my chronic health issues. I also secured high-limit income replacement insurance from them. I’ve held this policy since 2022, and I hope I never 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 opt for a high premium and high payout policy from a smaller firm. Is there any merit to my friend’s viewpoint?
It’s completely understandable to have concerns about the stability of an insurance company, especially when you’ve invested in high premium policies. Your friend makes a valid point about the risks associated with smaller insurance companies, as they may not have the same level of financial reserves or diversification as larger, more established firms. Here are some things to consider:
Financial Stability: Research the financial ratings of the insurance company. Independent rating agencies like A.M. Best, Moody’s, or Standard & Poor’s can provide insights into the company’s financial health and ability to pay out claims.
State Guarantee Associations: In many regions, state guarantee associations exist to protect policyholders if an insurance company goes under. These associations can cover certain types of policies up to a certain limit, so it’s worth checking if your policy would be covered.
Policy Details: Evaluate the specifics of your policies. Understand the terms, conditions, and any limitations. Make sure you’re comfortable with what you’ve signed up for.
Diversity of Coverage: Having multiple policies or diversifying your coverage among different insurers can mitigate risks. If possible, consider balancing your coverage between the smaller company and a larger, more stable one.
Seeking Expert Opinions: Consulting with a financial advisor or insurance expert can provide tailored advice based on your specific situation and needs.
Ultimately, it’s important to weigh the benefits of your current policy against the risks of the insurance company’s size. While there are valid concerns, if the company is well-rated and you feel comfortable with your decision, it might still be the right choice for you.