Insurance Tip #10: Company ratings are not the most important factor when buying cash-value insurance

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

Ratings are often bandied about as the standard by which you should select an insurance company for cash-value insurance (often called "permanent" insurance). The primary rating agencies are A.M. Best, Duff & Phelps, Moody's, and Standard and Poor's. You can access the Standard and Poor's ratings for life insurance companies here.

Weiss Ratings also rates the strength of insurance companies. Some perceive its ratings as more independent than the primary rating agencies because it does not receive most of its revenues from the insurance industry. Others believe that the Weiss methodology produces ratings that are questionable.

While there is no standard applicable to every situation, since there are so many companies rated either "superior" or "excellent,' it would be difficult to justify the additional risk of purchasing insurance from a company with a lower rating.

However, ratings tell only part of the story.

You want an insurance company that has relatively strong investment performance, relatively low mortality rates, relatively low expenses and has demonstrated a willingness to treat both new and existing policyholders fairly.

One area that you can easily understand is expenses.

Ask your agent to list all fees, commissions, expenses and overrides for the first year and for each renewal year. If she tells you she either won't or can't comply, find an agent who will.

Consider whether a blended policy from a company like Northwestern Mutual is appropriate for you. I discuss the benefits of these policies in tip #4.

TIAA-CREF offers "no load" policies directly to consumers. But be careful. If you intend to hold your policy for the long term, you could end up doing more harm than good if you give up investment and mortality performance and focus solely on eliminating commissions.

See 10 more insurance tips from Dan.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).

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