How to Make Sure Your Insurance Is Safe

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Speaker: It is more important than ever these days to keep your eye on your life insurance, especially if your provider is in danger of failing. Joining us with some key advice is Jill Schlesinger, editor at large for CBS MoneyWatch.com. Good morning, Jill.

>> Jill Schlesinger: Good morning.

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Speaker: First of all, which are the companies that are struggling right now?

>> Jill Schlesinger: There are a few big ones that have been in the news, Prudential, Hartford, MetLife. Their stock prices have been under pressure, and that's really a sign that investors are worried that things aren't so good inside of these companies.

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Speaker: So if that's my life insurance company, what should I do?

>> Jill Schlesinger: Well, first of all, let's talk a tiny bit about, like, what actually is going on here. Two things. Like most companies, insurance companies actually make bets with your premiums. So they've got to invest the money that you pay them for your insurance policy, and they've got to make sure it grows so that they can pay out death benefits when someone's policy is coming due, right? So they invest in bonds, in real estate, and some of those investments went sour for these companies. The other part of the problem for these types of companies were they made promises to investors. And what I mean by that is there are certain insurance products that have investments inside, actually. And so the insurance company said, "We're gonna promise you, Miss Investor, seven percent return." And guess what? Seven percent didn't quite happen. So it's the combination of their own investments and their promises to insurance holders that got them into trouble. So if you have one of these companies, it doesn't mean you have to panic right now, but you need to keep an eye on them.

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Speaker: So keep an eye and what? Stay with them? Switch companies?

>> Jill Schlesinger: To -- you know, it's a very difficult question because we don't want to start a run on these insurance policies and these companies.

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Speaker: Right.

>> Jill Schlesinger: So we're not gonna -- we don't want to induce panic, but what I mean by that is that when you have an insurance company that's really in the news, and you see that it's financially struggling, you call your insurance agent up, and you say, "Hey, has your rating been dropped? Is there a problem I need to know about? Are you gonna be able to pay a death benefit if I were to die? Is my family gonna be protected?" And you want to hear what they have to say. Now, if they really teeter into bad, bad trouble, insurance companies do have a mechanism to help people who have policy -- policies with them. And every insurance company pays into a state guarantee association. That means that if they run into financial problems, the state in which they registered takes over. And, if you have a policy, and it's 300 thousand dollars or less -- it's different in every state, so you can check states, but generally, if it's 300 thousand dollars or less, you're fine. If it's more than 300 thousand dollars, if you have a million dollar life insurance policy with one of these companies, I would be very concerned, and I may even start to switch my coverage to another, more stable company.

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Speaker: Tell me some of the stable companies that are out there.

>> Jill Schlesinger: These companies are gonna love us this morning.

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Speaker: Yes.

>> Jill Schlesinger: Northwestern Mutual, New York Life, and TIAA Cref are three of the most conservatively run insurance companies. They have not ventured into the riskier investments, nor did they get involved with those promissory contracts. They have really been able to retain their stellar ratings.

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Speaker: Do they have higher premiums?

>> Jill Schlesinger: You know, interesting. It depends on the policy you get. In some cases, yes, they do.

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Speaker: Okay.

>> Jill Schlesinger: You know, if you get an expensive policy, sometimes they do.

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Speaker: If I'm with one of those three that you've just named, do I have nothing to worry about?

>> Jill Schlesinger: I would say that you have very little to worry about. I think in this day and age to say nothing is a stretch.

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Speaker: Yeah.

>> Jill Schlesinger: I think that what we really need to say to people is you should have insurance. You should make sure you understand what kind of coverage you need. If you need more than 300 thousand dollars of coverage, you should be -- you may want to split it up into a variety of policies. If you need a million dollars, maybe get three 333 thousand dollars policies.

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Speaker: All right. Do you know of any life insurance company that has gone belly up, and what happened in that instance?

>> Jill Schlesinger: Well, there was one company back in the early '90s called "Mutual Benefit." And it was actually in New Jersey. And what happened was they made some very risky real estate bets. The Insurance Commissioner of New Jersey came in, took it over. Now, what happens is people didn't lose the money in their policies, nor did they lose their coverage. It just took a long time to get the process taken care of. What usually happens is other insurance companies come in and buy off pieces of the insurance company that's in trouble. The worry today? There aren't a lot of willing buyers. So that there would be a very lengthy and very onerous process. We don't want to see any insurance company fail. It's why I actually think the idea of extending TARP to insurance companies is not a bad idea. We don't want to see insurance companies fail.

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Speaker: We'll see what happens. Jill Schlesinger, Editor at Large for CBS MoneyWatch.com. Thank you, Jill.

>> Jill Schlesinger: Thank you.

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