Why buy life insurance, if chance the company can't pay the benefit?

Question

Can someone please explain to me why anyone would pay for a life insurance policy (let's say a "guaranteed" whole life policy for simplicity) starting at age 40 and then find out after paying their premiums for 20 years on time that the company goes belly up and can't make good on the "guarantee" if they were to die the next day? How is this a guarantee? Basically you could end up putting thousands in a policy to find its forfeited some years later because the product really is not guaranteed..Seems smarter to take that money and invest, buy real estate, off shore accounts, trusts etc etc..

Answer 1

You just gave the reason to go with a strong insurance company, that is, one with a high (A or better) rating from A.M. Best or one of several other ratings agencies.  These

rating agencies keep track of the financial strength of insurance companies.  (Have an agent explain this further).

The insurance industry support each other and the states regulate each insurance company that does business in their state.

You can learn all about insurance (there are many websites) or you can learn to trust an agent.

src50, you state "the PRIMARY purpose of life insurance is for the benefit of your survivors - to replace your lost income should you die."

There are many SECONDARY reasons to buy life insurance like paying off any bills that might be left, leaving money for children or grandchildren (tax-free as well), bequeathing money to a charity or taking care of a dependent child throughout his/her life.  Term insurance won't do that!

Many seniors these days will leave behind large medical bills (like nursing home bills and bills from people who provide care in the last months or years of life).  Personal savings often are insufficient to cover these bills.

There is a place for both term and permanent insurance.  In fact, MOST consumers would be well served to have some of each.

My $0.02

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Answer 2

The primary purpose of life insurance is for the benefit of your survivors - to replace your lost income should you die.  If you pick an established, financially solid insurer, you won't have a problem.

Answer 3

As some of the above have mentioned, the industry gobbles up the companies that go under just for the policies.

Even though there are around 500 companies today, compared to over 2k just 30 years ago, it was all consolidation.

Answer 4

Their has never been an insurance company go belly up and leave the policy holders out in the cold. The industry has always stepped forward and picked up the policies and covered them. (At least in the USA)

Remember insurance is not an investment. With insurance you could die the day you bought it and collect. Just like you can wreck you car the day you bought it and the insurance would cover it. Insurance is protection.

Answer 5

It looks like you already got some good answers, but I'll add a little more explanation.  

The "guaranteed" part is probably just referring to the fact that the rate is guaranteed not to go up and the benefit not to go down.  They are also guaranteeing that you will have coverage as long as you continue to pay premiums.  For example, they can't just drop your life insurance or raise your rates because they find out you are sick.  

I doubt any insurance company or bank can guarantee that they will be around in 40 years.

Answer 6

Very true, most people can not afford the risk of their family losing their income. Term life is a good option as it covers you while you have a family and while it is in place you can save and invest to where you are able to self insure when the term expires.

Look at the rating on the insurance company as this should be from an independent agency that assesses the financial strength of the company.

Answer 7

The policy and the company are two different subjects.  Choose a solid company and your policy is good.  If you are nervous about investing choose term life.  Short term cheap insurance.

Answer 8

northwesternmutual.com will help you find a comfort zone...