How Insurance Companies are Rated and What That Means
Insurance companies are rated by several different kinds of rating companies; typically the most notable is AM Best. They are rated on several factors ranging from the degree liquidity to the amount of business on the books.
Many people have the mistaken notion that only a company with a superior ranking of A+ (or A++ depending on the service you evaluate the company with) is a reputable company, and that all others should be avoided. Nothing could be further from the truth!
An insurance company must meet a required threshold of "availability to pay claims," to put it in layman's terms, before they can even do business. You can have the same degree of security doing business with a company rated B+ as you can with a company rated A+; the difference is simply the amount of money they have within the company, or premiums reported to be "on the books." It has little to do with the company's ability to pay claims.
When a claim is due, regardless of the different kinds of life insurance policies the company may offer, there are certain documents that may be required for payment on a life insurance policy claim. These include a certified, official copy of the death certificate stating that a person died on a particular date. A claim form from the insurance company would also usually be required to be signed by each beneficiary or their representative.
The Different Kinds of Life Insurance
Term life insurance is a type of life insurance that is temporary, as it covers only a specific period of time, the relevant term. It can be considered pure insurance because it builds no cash value. This is in contrast to permanent life insurance such as whole life, universal life, and variable universal life.
Term insurance is the cheapest way, in the short run, to buy a given amount of insurance death benefit on a coverage per premium dollar basis.
Annual Renewable Term
The simplest form of term life insurance is for a term of one year. The insurance company would pay the death benefit if the insured died during the one-year term and no benefit is paid if the insured dies after the last day of the one-year term. The premium paid is then only the expected probability of the insured dying in that one-year plus a cost and profit component for the insurer. Since the likelihood of dying in the next year is low for anyone that the insurer would accept for the coverage, purchasing one year of coverage is not generally done, nor cost effective. A variant that is commonly purchased is annual renewable term (ART). In this form, the premium is paid for one year of coverage, but the policy is guaranteed to be able to be continued each year for a given period of years. This period varies from 10 to 20 years, or until age 95 sometimes. In this form the premium is slightly higher than for a single year of coverage, but is much more likely for the insured to have the benefit paid. Life insruance is cheaper than you think. Find out immediately how little it really costs to protect your family at NetQuote. It's FREE!
Level Term
Much more common than annual renewable term insurance is insurance where the premium is the same for a given period of years: the most common periods being 10, 15, 20, and 30 years. In this form, the premium paid each year is the same, and is the cost of each year's annual renewable term rates averaged over the term, with a time value of money adjustment made by the insurer. Thus the longer the term the premium is level for, the higher the premium, because the older, more expensive to insure years are averaged into the premium.
Permanent Insurance
Permanent life insurance is a form of life insurance such as whole life or sometimes referred to as endowment insurance where the policy is for the life of the insured. The payout is assured at the end of the policy (assuming the policy is kept current), age 100. This type of insurance accrues cash value, which in legal terms is nothing more than "unused, or unearned premiums" that have been accumulating due to an excessive premium charge to the consumer. These cash values belong to the insurance company and NOT to the consumer.
Permanent life insurance is a form of life insurance such as whole life or endowment, where the policy is for the life of the insured, the payout is assured at the end of the policy (assuming the policy is kept current) and the policy accrues cash value. Permanent life insurance originally was offered as a fixed premium fixed return product known as whole life insurance. This offered consumers guaranteed cash value accumulation and a consistent premium. Whole life insurance is designed to insure the individual up through age 100. As such, the premium dollars are substantially high in the younger years since you are not paying for only one year of risk but instead are paying through age 100. One of the professed benefits used to sell this type of insurance is that the premiums never change and remain constant throughout the life of the insured making the policy valuable for older individuals as they will be able to afford the premiums later on in life. But, that is because they have been paying on the policy for their entire life.
If an individual lives to age 100, and they own a whole life insurance policy, then the policy matures at that point as the individuals has statistically reached the mortality rate for which the actuary tables were created and they have, for all intents and purposes, outlived the premiums and can receive them back in the form of the cash value the policy has accrued. Remember, the cash values are not a savings program in a whole life insurance policy, but are legally "unused, or unearned premiums" and therefore are the insurance companies property. This is why you must borrow the cash value that accumulates in the policy over time. In the unfortunate event of death, any cash value stays with the insurance company and the beneficiary of the deceased receives the face amount of the life insurance policy.
Universal Life Insurance
Universal life insurance is a permanent life insurance policy that works on the premise of "buy term and invest the difference." The cash value that accumulates in the policy does so in a separate account where the actual cost of insuring against the risk of dying (mortality rate expenses) are charged. Although the premiums remain constant like those of a whole life insurance policy, if the actuarial cost of the insurance rises, or if the fees and other expenses charged against the policy increase, or if the cash value accumulating in the policy reaches the point, due to these kinds of fees and expenses, where it is no longer sufficient to cover these cost, then the policy goes into remission and the insured either raises the premium to keep the policy in force or the policy is cancelled.
Variable Life Insurance
Variable life insurance is another form of permanent whole life insurance and is similar to how Universal life insurance works. The difference between these two policies is that the cash values in a Variable life insurance policy are not held in any kind of money market or separate account as they are in Universal life insurance policies, but instead can be invested in stocks or other mutual fund types of accounts that are offered by the insurance company. Although the potential exists for the cash value to increase at a much faster rate of return, the possibility also exists for the policy to cancel itself sooner due to unforeseen or volatile market conditions associated with the stock market. If the amount of cash value within the policy is insufficient to pay the actuarial cost of the insurance benefit and the other fees associated with the policy then the insured will have to pay the difference in the form of higher premium dollars or risk the policy terminating.
Compare several different life insruance quotes and save up to 40% with NetQuote.
Insurance companies are rated by several different kinds of rating companies; typically the most notable is AM Best. They are rated on several factors ranging from the degree liquidity to the amount of business on the books.
Many people have the mistaken notion that only a company with a superior ranking of A+ (or A++ depending on the service you evaluate the company with) is a reputable company, and that all others should be avoided. Nothing could be further from the truth!
An insurance company must meet a required threshold of "availability to pay claims," to put it in layman's terms, before they can even do business. You can have the same degree of security doing business with a company rated B+ as you can with a company rated A+; the difference is simply the amount of money they have within the company, or premiums reported to be "on the books." It has little to do with the company's ability to pay claims.
When a claim is due, regardless of the different kinds of life insurance policies the company may offer, there are certain documents that may be required for payment on a life insurance policy claim. These include a certified, official copy of the death certificate stating that a person died on a particular date. A claim form from the insurance company would also usually be required to be signed by each beneficiary or their representative.
The Different Kinds of Life Insurance
Term life insurance is a type of life insurance that is temporary, as it covers only a specific period of time, the relevant term. It can be considered pure insurance because it builds no cash value. This is in contrast to permanent life insurance such as whole life, universal life, and variable universal life.
Term insurance is the cheapest way, in the short run, to buy a given amount of insurance death benefit on a coverage per premium dollar basis.
Annual Renewable Term
The simplest form of term life insurance is for a term of one year. The insurance company would pay the death benefit if the insured died during the one-year term and no benefit is paid if the insured dies after the last day of the one-year term. The premium paid is then only the expected probability of the insured dying in that one-year plus a cost and profit component for the insurer. Since the likelihood of dying in the next year is low for anyone that the insurer would accept for the coverage, purchasing one year of coverage is not generally done, nor cost effective. A variant that is commonly purchased is annual renewable term (ART). In this form, the premium is paid for one year of coverage, but the policy is guaranteed to be able to be continued each year for a given period of years. This period varies from 10 to 20 years, or until age 95 sometimes. In this form the premium is slightly higher than for a single year of coverage, but is much more likely for the insured to have the benefit paid. Life insruance is cheaper than you think. Find out immediately how little it really costs to protect your family at NetQuote. It's FREE!
Level Term
Much more common than annual renewable term insurance is insurance where the premium is the same for a given period of years: the most common periods being 10, 15, 20, and 30 years. In this form, the premium paid each year is the same, and is the cost of each year's annual renewable term rates averaged over the term, with a time value of money adjustment made by the insurer. Thus the longer the term the premium is level for, the higher the premium, because the older, more expensive to insure years are averaged into the premium.
Permanent Insurance
Permanent life insurance is a form of life insurance such as whole life or sometimes referred to as endowment insurance where the policy is for the life of the insured. The payout is assured at the end of the policy (assuming the policy is kept current), age 100. This type of insurance accrues cash value, which in legal terms is nothing more than "unused, or unearned premiums" that have been accumulating due to an excessive premium charge to the consumer. These cash values belong to the insurance company and NOT to the consumer.
Permanent life insurance is a form of life insurance such as whole life or endowment, where the policy is for the life of the insured, the payout is assured at the end of the policy (assuming the policy is kept current) and the policy accrues cash value. Permanent life insurance originally was offered as a fixed premium fixed return product known as whole life insurance. This offered consumers guaranteed cash value accumulation and a consistent premium. Whole life insurance is designed to insure the individual up through age 100. As such, the premium dollars are substantially high in the younger years since you are not paying for only one year of risk but instead are paying through age 100. One of the professed benefits used to sell this type of insurance is that the premiums never change and remain constant throughout the life of the insured making the policy valuable for older individuals as they will be able to afford the premiums later on in life. But, that is because they have been paying on the policy for their entire life.
If an individual lives to age 100, and they own a whole life insurance policy, then the policy matures at that point as the individuals has statistically reached the mortality rate for which the actuary tables were created and they have, for all intents and purposes, outlived the premiums and can receive them back in the form of the cash value the policy has accrued. Remember, the cash values are not a savings program in a whole life insurance policy, but are legally "unused, or unearned premiums" and therefore are the insurance companies property. This is why you must borrow the cash value that accumulates in the policy over time. In the unfortunate event of death, any cash value stays with the insurance company and the beneficiary of the deceased receives the face amount of the life insurance policy.
Universal Life Insurance
Universal life insurance is a permanent life insurance policy that works on the premise of "buy term and invest the difference." The cash value that accumulates in the policy does so in a separate account where the actual cost of insuring against the risk of dying (mortality rate expenses) are charged. Although the premiums remain constant like those of a whole life insurance policy, if the actuarial cost of the insurance rises, or if the fees and other expenses charged against the policy increase, or if the cash value accumulating in the policy reaches the point, due to these kinds of fees and expenses, where it is no longer sufficient to cover these cost, then the policy goes into remission and the insured either raises the premium to keep the policy in force or the policy is cancelled.
Variable Life Insurance
Variable life insurance is another form of permanent whole life insurance and is similar to how Universal life insurance works. The difference between these two policies is that the cash values in a Variable life insurance policy are not held in any kind of money market or separate account as they are in Universal life insurance policies, but instead can be invested in stocks or other mutual fund types of accounts that are offered by the insurance company. Although the potential exists for the cash value to increase at a much faster rate of return, the possibility also exists for the policy to cancel itself sooner due to unforeseen or volatile market conditions associated with the stock market. If the amount of cash value within the policy is insufficient to pay the actuarial cost of the insurance benefit and the other fees associated with the policy then the insured will have to pay the difference in the form of higher premium dollars or risk the policy terminating.
Compare several different life insruance quotes and save up to 40% with NetQuote.