Fool me once, shame on you; fool me twice, shame on me. In other words, once warned, the prudent person takes action―even if it’s only to seek more information.
Given the recent financial crisis and subsequent bailout at the nation’s largest insurer, American International Group (AIG), it’s natural to wonder about the safety and adequacy of your own insurance policies, whether or not you’re insured by AIG. Are your policies really secure? And more broadly, are they really adequate and appropriate for your current needs?
Generally, the answer to the security question is yes, regardless of your insurer. The answer to the second question depends on just how long it’s been since you evaluated your insurance as part of your overall financial and estate planning process.
Insurance is an important element of your overall financial plan, so it’s important to re-evaluate your coverage relative to your needs on a regular basis. This is particularly relevant when your personal situation changes (e.g., marriage, divorce, birth of a child, new house, new business), or when your risk tolerance or net worth changes―perhaps as a result of a volatile economy.
Regardless, there are things you should know about ensuring the safety and adequacy of your policies―especially during these troubling times for the U.S. economy.
AIG Insurance Policies
If you have an insurance policy with AIG, Washington State’s Insurance Commissioner, Mike Kreidler, suggests that you don’t worry and don’t make any rash decisions: “All of AIG’s insurance companies are strong and solvent.” He explains that the “trouble with AIG is largely with AIG’s non-insurance parent company, which is not regulated by the states and therefore not held to the same investment, accounting, and capital adequacy standards as its state-regulated insurance subsidiaries. The insurance subsidiaries are financially sound and able to meet their obligations.”
Commissioner Kreidler does, however, warn about a number of fraudulent schemes or improper sales practices that seek to benefit from the problems at AIG. “If someone tells you to replace any policy because an AIG insurance company is in trouble and may not be able to pay your claim, that is not only untrue, it’s against the law. Call our Insurance Consumer Hotline at 1-800-562-6900″ to report the contact.
For a list of all AIG insurance companies authorized to do business in Washington, click here.
Researching Your Own Insurance Company
If you’re concerned about the financial health of your insurance company, there are a number of online resources available to you. In addition to information posted on your insurance company’s website, the online company search tool provided by The National Association of Insurance Commissioners (NAIC) allows you to access financial, licensing, and complaint information for your insurer.
There are a number of other online tools to help, as well. For example, TheStreet.com provides a list of strongest and weakest insurers. Insure.com’s company rating lookup is online here. Insbuyer.com also lists insurance company rating resources here.
State Insurance Guaranty Funds for All Insurers
In the event that your insurance company experiences a financial crisis, there is a type of safety net for policyholders maintained at the state level. Operating much like the FDIC does for banks, the guaranty fund of each state pays claims to its own resident policyholders if their insurers are financially unable to do so.
According to the Washington State Office of the Insurance Commissioner, “In the unlikely event that an insurance company is liquidated, property and casualty claims would be subject to a $100 deductible. The guaranty association then pays the remainder of the claim subject to policy limits or the guaranty association limit of $300,000―whichever is less. Life, disability and annuity claims do not have a deductible. They are paid subject to the policy limit or the guaranty association limit of $500,000―whichever is less.”
To check the guarantee fund limits for other states, refer to the NAIC website and select your state from the online map. The NAIC also provides a number of online guides and tools for consumers.
Insurance as Part of an Overall Financial Plan
Insurance is an important element in many financial and estate plans, so any changes in insurance coverage should be carefully considered.
There can be significant tax and financial consequences from changing an insurance policy―a reduced cash surrender value or a cancellation penalty, for example. If you bought your life insurance policy years ago, changing insurers may result in a significantly higher premium based on your current age or health. You may even incur a taxable gain or loss from the sale or surrender of a life insurance policy.
If you’re considering a change in your insurance coverage, in addition to consulting with your insurance advisor, speak with your advisor at Bader Martin to ensure that any changes are consistent with your overall financial and estate plans.
Although our firm does not sell insurance―or any financial products, for that matter―we can provide an independent perspective to help you determine your insurance needs as part of an overall financial or estate plan and, if appropriate, facilitate discussions with insurers to help you get the coverage you need.
