Stability of B+ rating for Life Insurance Company

[almok]

What is the name of your state?California

I have about $250,000 of life insurance through my employer and if I ever left that employer I would be able to convert to a whole life individual policy at a incredibly expensive rate depending on when t he conversion was done. Therefore I purchased an extra policy for $150,000 at 20 years through American Life Insurance Company of New York. This was done on-line and with no medical exam, but at a higher monthly rate. Two years ago I had applied for term insurance with medical exam but failed th exam and was denied insurance. Also I had taken different psychiatric medications so reapplying and getting accepted for the near term is unlikely. So I purchased the cheaper policy recently to at least get some coverage. AM Best rated American Life Co of New York at a B++ rating last year and now they are at B+. They are reputable and have been in business for a long time. I talked with a broker about this and he said the following:

1. It is rare for life insurance companies to go under or out of business. If this were to happen it is likely another company or holding company would purchase their policies or buy the company.
2. Insurance companies pay into a state insurance fund so that in the case of insolvency, etc. policy holders would still be covered for the remainder of their terms.

Any validity to these statments?

Thanks,
Al

 

[ALawyer]

I am familiar with the company and it has gone through a series of management changes. That said, even Executive Life was an A rated company until shortly before it was taken into insolvency. Many industrial companies, such as Enron and WorldCom had good ratings too. Sort of suggests what ratings mean.

There is a state insurance guarantee fund in every state that does protect life insurance policyowners and beneficiaires up to an amount that is set in the state's laws. They vary by state but my recollection is that they all are at least $150k in terms of policy death benefits.

In most cases of an insurance company insolvency there is another company that takes over the block of the failed company's business and runs it. It sounds to me that you should keep the coverage in force, at least until and unless you get another carrier to write you.

True, the conversion policies from your group term provide awful rates, and are really not designed to be attractive. That's because healthy (as defined by insurance companies that means people without significant risk factors, at least on paper) people leaving a group can generally get a new policy at very favorable rates, while those who leave and take the conversion options usually have significant health impairments. Remember that one reason lots of people who do leave an employer is that they have become sick and can't work.