Life Insurance Consumer Protection

Amid recent economic recessions and depressions, life insurance consumer protection is at the forefront of every policyholder’s mind. At QuickQuote.com, we recommend customers only shop for life insurance policies from companies with A+ financial ratings that are verified by your state’s Department of Insurance. Read our guide for more information about what kinds of life insurance consumer protections are in place should your provider go out of business.

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Tim is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. He writes and creates stuff for QuickQuote and other insurance and financial websites.

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UPDATED: Oct 28, 2020

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In light of the economic climate our country is currently in and with all the recent negative news surrounding financial companies, it is normal for consumers to be wary of doing business with these companies and with financial products in general. When it comes to life insurance companies and term life insurance specifically, it has also become quite common for consumers to contact QuickQuote looking for answers and reassurance.

Table of Contents

The Apple Can Fall Far From the Tree

Until the recent troubles experienced by AIG, the life insurance industry seemed insulated from the financial meltdown we have experienced. However, the AIG situation has taught us many important lessons.

Perhaps the most important one our industry has learned is that a strong financial position does not in and of itself isolate a life insurance company from the negative impact of its parent company’s actions. A life insurance company’s name is quickly and easily associated with that of its parent company, in both good times and bad.

Case in point: American General Life Insurance Company, a subsidiary of AIG. American General is one of the strongest life insurance companies in America. The company has excellent management, solid financials and a reputation as a leading issuer of term life insurance among other financial products. However, the company has had to deal with the fallout of its parent company in ways most of us cannot imagine.

Whether that is fair or not is open to debate. Many believe you have to take the bad with the good, and the company has taken its share of both over the years for its affiliation with AIG.

What if Your Company Goes Under?

But let’s get back to the focus of this blog, Life Insurance Consumer Protection in times of financial crisis. We always advise our customers to consider only A-rated or better companies for their term life coverage.

That by itself is not enough, however.

What about after the purchase?

What happens if American General or any other life insurance company ‘goes under’?

Well, let’s start by saying that is highly unlikely to happen. First and foremost, insurance is one of the most highly regulated industries in the nation.

Insurance is regulated at the state level, and individual states impose reserve requirements on all life insurance companies. Those reserves are in the form of cash, and they offer the first layer of protection for your policy.

Second, if an A-rated life insurance company found itself in dire financial straits to the point of ceasing operations, the company would most likely look to either merge or sell itself to another life insurance company or financial organization. When this happens, the policies of the acquired company are typically assumed by the new owner who offers another layer of protection.

Finally, in the worst case scenario game, let’s assume a life insurance company does fail and defaults on its policies. In this case, the individual states would step in once again and provide protection for those policies in the form of the State Guaranty Association.

Funds from the association are used to pay the claims of insolvent insurance companies. Each state offers its amount of coverage for life insurance policies. These range in values from a percentage of the coverage amount in some states to a high of $500k in others, with the most common amount being $300k. We will provide a chart in a related article on this topic soon and will update this blog to include the article link.

Please be sure to check with your state department of insurance to determine the amount of protection your state offers under this program. Our licensed representatives are also available to answer your questions about this program as well as specific life insurance company related questions.

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