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LAURA COFFEYThese are rough times for the life insurance industry. Dozens of insurers have been downgraded recently by the companies that assess their strength. When a wave of downgradings occurs, insurance agents often encourage consumers to buy new policies with higher-rated companies. Is such a move best for you? To learn about your options, read on.
1. Get the lowdown on your insurer. These five companies evaluate insurers: A.M. Best (www.ambest.com) Fitch Ratings (www.fitchratings.com) Moody's Investors Services (www.moodys.com) Standard & Poor's (www.standardsandpoors.com) Weiss Ratings (www.weissratings.com)
2. Do you have a renewable term-life policy? If so, and if your insurer is failing, it's okay to cancel your term policy and buy another from a higher-rated insurer. You won't lose anything because the policy provides no cash value, only a death benefit.
3. Think twice about switching if your health is poor. A new insurer might charge you a higher premium or deny coverage. Be sure to set up a new term policy before canceling the one you have.
4. It's more complicated to cancel cash-value policies and fixed-rate annuities. You'll face surrender charges if you withdraw money before a specified time period goes by, and you'll be hit with taxes on any earnings that money made.
5. What's the worst that could happen? If your insurer folds, guarantee associations typically repay up to $100,000 in cash value or $300,000 in death benefits. Consider staying with your original insurer if your death benefits or cash values fall within those limits.
6. When it might be best to invest elsewhere. If your policy exceeds the guarantee limits, you could borrow the maximum against the cash value and invest it somewhere else until the insurer's financial situation improves. That option would require you to pay interest on the loan.
7. You won't have to repay such a loan if the insurer fails. Your remaining cash value would be transferred to another insurer that would take over the policy.
8. Before making a switch, seek out professional advice from a financial planner or an accountant with an insurance background.
9. Make a direct comparison. The Consumer Federation of America will compare your current life-insurance policy with potential new policies. The cost is $65 for the first policy and $40 for each additional one. Go to www.consumerfed.org or www.evaluatelifeinsurance.org
10. Do some homework. If you decide to switch insurers, select one that is deemed secure by at least three of the five rating companies. Also check out the insurer's consumer complaint history by contacting the Florida Department of Financial Services' Office of Insurance Regulation on the Web at www.fldfs.com or toll-free at 1-800-342-2762.
- Sources: Consumer Reports (www.consumerreports.org) Insurance Information Institute (www.iii.org) Florida Department of Financial Services (www.fldfs.com)