In recent weeks I have written a couple of times regarding my concerns about the financial stability of my life insurance company, Protective Life. It seems like there may be new reasons for concern. After Protective Life was downgraded by some rating agencies recently, it seems that the company is now seeking the status of a bank holding company, so that it can receive some Federal bail-out money...
I have conflicting feelings about this whole thing. First, can anyone now get federal bail-out money? You simply need to be declared a bank holding company? That seems seriously wrong. However, I am concerned about the status of my life insurance policy and I am not quite sure what the appropriate response may be. Should I be out looking for a new policy from another insurer? How can I tell if the new insurer is any better? I mean, when I did my due diligence, Protective Life seemed stable enough too. Finally, I am not clear whether my life insurance policy is at risk here or not.
Life insurance policies are typically guaranteed by state guarantee associations. However, in last week's issue of Business Week, there was an article about the fact that those associations have very few assets to back-up those guarantees (sorry I couldn't find a link to the article itself). Here is a quote:
"When Executive Life went belly up in 1991, states couldn't raise enough to cover its obligations. Annuity and life insurance policyholders in California recovered as little as 70 cents on the dollar or were forced to accept modified terms with alternative providers. "I wouldn't put tremendous amount of credence in the guarantee funds," says Adam Sherman, president of advisory firm Firstrust Financial Resources in Philadelphia."
Wonderful. Another quote:
"Insurance customers need to be more vigilant. Stop focusing only on cost and service and start worrying about solvency. Check such agencies as Standard & Poor's, Fitch Ratings, Moody's and A.M. Best to find the highest-rated companies, and be alert for downgrades."
Yes, but I did all that. What do you do if there is a downgrade? I don't have an answer yet. Still trying to figure this all out.
In any case, if you would like to find out about the current strength of your own life insurance company, the Insurance Information Institute offers detailed explanations on how to find and interpret ratings from each of the four rating agencies listed in my quote above (the links are close to the bottom of the page).
I'll keep you posted when I decide how to address this issue, but in the meantime, let me know if you have any suggestions.
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