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While it's usually the first thing you look at, price is not the
only factor to consider when you're shopping for insurance.
Service quality counts: cheap coverage from a company that offers lousy
services, takes forever to settle its claims, or goes bankrupt is worse
than no coverage at all. You also should consider the financial
strength of a company and the specific coverages and benefits it may offer.
This is usually very difficult to do entirely on your own, and for
that reason we strongly advise that you get the help of a really
good advisor who knows all the details.
As the name suggests, the financial strength rating indicates how well
prepared an insurance company is to pay out claims to its policyholders.
While you want your auto or home insurer to have a good rating, it's
vital that your life insurer has one, since the company may not
have to pay out on your policy for a long time. You'll want to make
sure that the company will still be around when the time comes.
There are five major ratings services in the U.S. that list
financial-strength or claims-paying ability ratings. All but A.M.
Best and Weiss tell consumers the claims-paying ability rating of a company
for free. All but Weiss are paid by the insurance companies
themselves to publish their findings. It's important to know about
this arrangement because it means that companies can request to have their
ratings withdrawn. Sometimes companies make such a request when their
ratings begin to slip. In addition to the letter ratings, most
services publish full analyses of an insurance company's health.
When is an "A" not an "A"?
Each of the five major ratings services has a different system for
grading companies. An "A" from A.M. Best is not the same thing as an
"A" from Standard & Poor's, and neither "A" is the highest mark a
company can get.
An agent should know the claims-paying ability rating of a particular
insurance company. If you have trouble getting the
information from a company itself, you may want to think twice about buying
from them.
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Service makes perfect
Companies distribute their products a few different ways.
Some work through independent agents or brokers, who represent
more than one company at a time and will try to get you the best deal
out of all the companies they represent.
Other insurers work through exclusive or captive agents. These agents represent
a single insurance company, and therefore should know their company products well.
However, they may not be familiar with products from other companies.
Still other insurers sell their products directly to consumers via
telephone, mail or the Internet. Direct insurers can often offer
their products at a discount, but many people like dealing with an agent or
broker because they like to feel that someone is, or ought to be, on their
side.
Once you've determined that a company is financially sound, you'll want
to consider the kind of service you're going to get. If you're buying
through an agent or broker, you'll want to make sure that he or she has a
good grasp of the product being sold, especially when it comes to life
insurance. You also want to make sure that your claims are going to
be handled quickly and with a minimum of fuss.
You may want to call an insurance company's customer service line and ask
what the average turnaround time is for processing and paying a claim.
If the company has these statistics, they should be happy to share
them with you. If you have trouble getting an answer, that also might
be a red flag.
Find out how a company decides to cancel policies. Usually, it's
spelled out in the actual policy, so make sure that you've read that bit of
fine print before you sign.
It's always a good idea to shop around; you may be able to find comparable
coverage and service elsewhere for a lower price.
The bottom line
Ultimately, it is vitally important that you have taken the time to
look at all the choices, that you really understand your choices, and
that you know where to turn when you need to make a claim or need help
changing coverages.
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