- One of the questions that I hear fairly often is which insurance company is best? How do I know that I'm working with the right insurance company? And specifically in the area of life insurance. Now, what I wanna do is give you the criteria to figure out which is the best insurance company. And if you came to this video hoping that I was gonna name the best insurance company, I hate to disappoint but we're not gonna do that.
I do wanna give you the criteria for evaluating if the insurance company you're talking with and working with is right for you. Now the second thing is I wanna differentiate between an insurance carrier which is the actual provider of the insurance itself and the agent or financial advisor that you're working with who is helping to facilitate your decision and they are selling you a product of the insurance company.
So we're gonna actually talk about both but first I wanna focus on the insurance carrier or the insurance company themself. Number one, that needs to be a mutual company. What do I mean? A mutual company with an M is different from a stock company. A mutual company is actually owned by the policy holders meaning that that is their number one interest and they pay dividends to the policy holders when there's an overage in their profit above what they need to keep in reserves.
So that means that you as a policy owner are one of the owners of the company and you have right to earn a portion of the company dividends. Now this is different from a stock company who has stock holders who are different from the policy owners and a stock company then has an obligation to pay out and improve the value of its stock for the stockholders which is a different party than the policy owners.
So you want a mutual company. That's where you're gonna have the return of company profit to you as a policy owner in the form of dividends. Now moving onto the security and stability of the company. There are several rating agencies that provide public data about the financial strength of insurance companies.
You can find this through Standard & Poor's, Fitch's, A.M. Best and they will assign a letter grade to the insurance company which changes from year to year and this is on the basis of their financial strength. So it is an assessment of all of their holdings, their reserves, where they're invested and the length of time they've been in business.
It really helps you to evaluate everything and the financial strength all at once. Now we recommend working with insurance companies that have at least a score with those rating companies of A or better. So you're not wanting to work with B and C type companies, you really wanna work with the A companies.
Next, you have something called a Comdex score and that is a score assigned to each insurance company on the basis of several industry ratings and that ranges between one and 100, 100 being the best and one being the worse. Now we recommend working with companies that have a Comdex score of at least 80 or better.
Now the fourth thing you want to look at is that you want an established company that has a long history of paying dividends. Now what I mean is that when we work with certain insurance carriers, we wanna make sure that they have a long history of paying dividends for at least 100 plus years. That means that they have weathered the Great Depression, they've weathered the Great Recession and they have continued to be profitable and pay out dividends during that time to the policy owners.
If you're talking with a company that has a shorter history of being around or they've had gaps in the dividends that they've paid, that's not a company that you want to rely on. You wanna really know that they have a long history of paying out dividends. Now I wanna switch over for just a moment to talk about the agents or the financial advisor company that you're working with.
One thing that is really important is to make sure that they have a succession plan in place. Now in the financial services industry, a lot of times you'll have advisors who are great advisors, but who are working with you one-on-one and when, or if, something happens to them or their business, or they leave the industry or they pass away, you are in a position where you're left without someone who can continue on that plan and trajectory for you.
So you really wanna be working with a company that has an established succession plan that has more than one person in the meeting with you, that has other advisors who are knowledgeable about your plan and what you're doing so that they can help carry that on no matter what happens to your primary agent.
That just gives you a lot of peace of mind and clarity and confidence to know that your plan is going to last longer than just the agent that you're working with. Now, in that summation of five things we just discussed, you'll notice that I did not say two really important things that might have been on your radar.
One is I did not say dividend rates are the number one determination of which insurance company is best. I also did not say that it has to be a direct or non-direct recognition company. Here's why. Dividend rates, the actual percentage of expected dividend that will be paid to the policy owners, is projected from year to year by each insurance company.
And at one time, a particular company may show a higher dividend scale than another company. So if you received an illustration today in 2019, you may see that company A has a higher dividend rate than company B. However, if you looked at that same illustration maybe 10 years ago, you may have seen an opposite difference.
You'll also note that sometimes some companies are very accurate with their forecasting of dividend rates, where other companies might project high and then end up coming in thousands of dollars less than what they told you. So you really don't want to use a dividend rate to base your decisions on.
So one company might show that they have a higher dividend and higher performance throughout the lifetime of the policy, however, don't be fooled by that because it's not necessarily a guarantee. If you're looking at dividends, which are on the non-guaranteed side of your illustration, you'll note that those do fluctuate each year and cannot be the sole thing that you make your decision about which company or which illustration is better for you.
The other thing is with direct and non-direct recognition, this has to do with how you are credited dividends based on whether or not you have a policy loan. What you'll end up noticing is that the companies that credit you a full dividend for all of your cash value normally will have a lower dividend than the companies that credit you only the portion of your cash value you do not have a loan against.
And so this again is one of those sticking points that a lot of people bring up and get stuck on but it's not the main thing to help you make decisions on which insurance company is best for you. So again, you want a high rating, you want a high Comdex score, at least over 80, a rating over A, you want a long history of paying out dividends, at least 100 years, you want a mutual company and then you wanna make sure your financial advisor team has a succession plan in place to really serve you and your financial goals and objectives through the end of your life so you can really achieve time and money freedom.
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