Is the “Premium” worth the “Premium”???
Published: July 29, 2010
Life insurers have fared well relative to banks in the recent economic meltdown and recession. Further, life insurers have fared well even when compared to historical average failure or impairment rates. We find a lot of clients looking to the highest quality carriers for their life insurance solutions which would seem very prudent, but…is the premium price worth the perceived risk avoidance? Is a Northwestern Mutual or New York Life really that much better than a John Hancock or Pacific Life? The fact is they are all great companies. Let’s look at the relatively low historical failure rates for life insurers.
History of Life Insurer Impairments
A.M. Best has historically tracked U.S. Life & Health (L&H) insurer impairment rates. From 1976 until 2008 the averaged impairment rate was 0.88%. In 2008, the impairment rate was 0.46%, below the average for the period. Even during the period when impairment rates peaked (1989 until 1991) in which nearly one-third of all impairments for the study time period occurred, the rate reached a high of only 3.1% (in 1991). (Please note that the data includes both life and health insurers.)
What you need to realize is that the overwhelming majority of life insurers that fail are small companies with $20 million or less in capital and surplus. The average annual failure rate for those companies is 2.28%, 76 times greater than the failure rate for companies with capital and surplus in excess of $500 million (0.03%). M Financial’s Carrier Partners each have capital and surplus in excess of $500 million.
So, is it worth the excess premium to purchase product from the absolute highest rated carriers to achieve a 0.03% perceived reduction in the underlying companies risk of financial failure??? Only you can answer that question. The purpose of this information is to give you a clear picture of the statistics behind the decision so you can both buy competitively priced products and sleep at night. Do your homework and look at both financial strength and performance. If a company is among the top in the industry and has a competitively priced product, it will more than likely be a good decision.
