Comments on: I want to put a small price on my head.

Question: I want to put a small price on my head.

wabashbdw — Fri, 19 Dec 2008 09:51:26 -0800

Why should I refrain from buying a very modest 30-year term life insurance policy from a financially unstable company like AIG?

Ok, I want to purchase a 30-year term life insurance policy. The value of this policy is within the limits guaranteed by the applicable state guaranty association. At this point, what is the benefit of paying a little more for an insurer with a strong financial position vs one that may not last 30 years?

My understanding is that if I buy the cheapest policy and the company goes under, then the state guaranty association takes over the policies and finds them a suitable home with another insurer or simply administers the policies itself. I was informed that my rates and coverage would remain the same. So why should I not save a couple bucks a month on the premium?

By: saeculorum

saeculorum — Fri, 19 Dec 2008 10:09:48 -0800

Do you have any concerns that the state guarantee association would go under? I wouldn't, but if you do, there's a reason.

Secondly, the inconvenience to you is that you'll have to deal with the paperwork of moving your policy around as well as changing who you send your paperwork to. If that matters to you, there's another reason.

Thirdly, your rates won't change if AIG went under right now. That policy may change in the future.

Finally, financially distressed insurance companies tend not to pay out money. I would suggest, although have no statistics to back this up, that AIG will make it harder for your beneficiary to claim the insurance policy since doing so puts them in a fiscally disadvantageous position. Keep in mind that there's a difference between what insurance companies are contractually obligated to do and what they actually do.

That said, I don't see any reason why not to go for a cheap policy. There are similarly no guarantees that a more expensive product would be better. I generally consider insurance to be a fungible product.

By: iamabot

iamabot — Fri, 19 Dec 2008 11:26:57 -0800

As I understand it, the AIG insurance division regarding life policies is actually very strong due to the regulation on that segment of their business. Your research may vary.

By: Pants!

Pants! — Fri, 19 Dec 2008 11:34:23 -0800

In addition, should AIG go under, this is one of the profitable sections of their business that would probably continue to exist under some other corporate structure.