Expert Guide to Finding Financially Strong Life Insurance Providers

Expert Reviewer: Ryan Comins
Chief Investment Officer, Mutual of Omaha

Summary: Choosing a financially strong life insurance provider means finding a company you can trust for the long haul. According to Mutual of Omaha Chief Investment Officer Ryan Comins, that starts with understanding how they invest your premiums. Comins advises looking at asset allocation, liquidity and third-party ratings to gauge a company’s financial health and reliability.

Unlike most purchases, buying life insurance or annuities requires long-term trust. When you select a product, you’re depending on the company to fulfill its promise — potentially decades later — at a time when your beneficiaries will need those benefits most.

To ensure they have adequate funds to pay benefits, insurance providers invest the money from the premiums their policyholders pay with the hope of earning returns that’ll help cover the cost of paying benefits. But how can you know before purchasing a policy or annuity that the provider is investing wisely and can be counted on to uphold its promise?

Evaluating an insurer’s investment strategy

It starts with due diligence and reviewing the company’s investment portfolio, according to Mutual of Omaha Chief Investment Officer Ryan Comins. One key factor is how the company allocates its assets.

When interest rates are low, some companies may seek investments with potential for higher returns. But those typically involve greater risk.

“Companies heavily weighted in highly rated bonds tend to be safer than those with a large allocation to equities,” Comins said.

A review of the company’s portfolio should reveal diverse investments across asset classes, sectors, industries and regions, he added.

Assessing financial strength and liquidity

When reviewing a provider’s assets, Comins recommends examining its liquidity profile. Generally, publicly traded assets are easier for companies to sell during times of stress than privately owned assets.

How a company’s investments perform can also strongly indicate its long-term financial strength. While temporary downturns and realized losses are expected, large impairments could signal higher risk in its investment portfolio.

If you find it difficult to interpret a company’s investment strategy, Comins suggests reviewing its management discussion and analysis, investor relations presentations and rating agency reports by Moody’s Ratings, S&P Global and AM Best Company for a simplified breakdown of allocations and risks.

Understanding policy guarantees and limitations

Insurance regulators and independent third-party rating agencies, such as AM Best Company, Moody’s Ratings and S&P Global, provide safeguards to protect owners of certain policy types from the possibility that an insurance company cannot pay claims.

However not all life insurance policy types are covered to the same degree. The guarantee may include limits. And, in some cases, larger policy holders may not receive their full benefit amount.

Even when a guarantee is in place, delays, restrictions or changes to policy terms may occur.

3 key steps for insurance shoppers

If you’re shopping for insurance or annuities and want to ensure you’re purchasing from a reliable company, Comins recommends following these three steps:

1. Know your financial goals and risks. This helps you remain grounded in your goals, objectives and risk tolerance when weighing options. Research what’s available to meet those needs and the average cost across carriers.

When comparing costs and benefits, be wary of policies promising unusually low premiums or extraordinarily high rates of return.

“There are no free lunches,” Comins said. “If most insurers are in a similar price range, but one seems too good to be true, it should raise your antenna. It’s essential that you ask more questions about how they’re able to offer such a deal.”

2. Research the prospective insurance company’s strategy. Make sure they’re aligned with your best interests. To get a clearer picture, obtain a copy of the company’s financial strength ratings and management discussion and analysis.

3. Understand the policy before you buy. Ensure the policy’s benefits, costs and risks align with your financial goals, budget and risk tolerance. If you’re unsure, talk to a financial advisor or call the company directly.

FAQs

Q1: How do life insurance companies mitigate financial risk?

Life insurance companies employ four essential strategies to manage and reduce their financial exposure:

• Underwriting allows companies to carefully evaluate potential policyholders before issuing coverage. This process helps insurers assess risk levels and set appropriate premiums based on individual circumstances.
• Diversification spreads risk across their entire portfolio rather than concentrating exposure in any single area. This approach prevents isolated events from causing disproportionate financial damage to the company.
• Prudent, liability-driven investing ensures that investment strategies align with the company’s obligations to policyholders. This conservative approach helps guarantee funds will be available when claims need to be paid.
• Strong risk management and governance provides the oversight and control systems necessary to maintain financial stability and make sound business decisions over time.

Q2: Are annuities covered by insurance company guarantees?

Yes. Annuities are obligations of the insurance company, just like other types of policies such as life insurance.

Annuities are backed by the insurance company’s general account assets and surplus, placing annuity holders in line with other policyholders. The strength of the insurance company directly impacts the security of your annuity.

States maintain guaranty associations that provide protection if an insurance company fails. Annuities are eligible for coverage up to specified limits under these state programs.

Q3: Can I lose money if a life insurance company goes out of business?

Yes. You could lose money and face delays in receiving promised benefits if your life insurance company fails.

When a company faces financial difficulties, state regulators typically take over operations. They may attempt to transfer policies to a stronger insurer before the company fails to pay claims, which represents the best outcome for policyholders.

If policies cannot be transferred and the company becomes bankrupt, state guaranty associations step in to provide coverage up to their specified limits. However, even with this protection, the complex liquidation process can lead to both losses and delays in receiving benefits.

Disclosure:

Annuity guarantees are backed by the claims-paying ability of the issuer.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

Expertly Reviewed by: Ryan Comins

Chief Investment Officer, Mutual of Omaha

Ryan Comins is Chief Investment Officer at Mutual of Omaha. He is responsible for strengthening relationships with external stakeholders and investment managers and overseeing the day-to-day management of the investment portfolio, investment personnel and general investment management department operations.

Comins joined Mutual in 2016 as director of Structured Credit and Trading. In 2018, he was named head of Asset Finance and Collateral Management. Before joining Mutual, he was a structured products syndicate at Societe Generale and the Royal Bank of Scotland, respectively.

Comins earned his bachelor’s degree from the University of Michigan.

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