Dear Insurance Adviser,
What should I do with a single-premium life insurance policy that originated in the 1980s? The interest on the lump sum I put in is better than I would get from money market funds or certificates of deposit, but I have concerns about the viability of the company. How can I find out if my money is safe? How can I learn about the health of the company? I am 77 years old and would like to leave the money where it is, but as I age, I have concerns. Thanks for your advice.
— Singly Worried

Dear Singly,
Nothing helps with anxiety better than a few facts.

First, find out if your state has an insurance guaranty fund. Most states do. In the event that an insurance company fails and is declared insolvent, policyholders with claims against the insurer can collect from the state guaranty fund.

If your state has such a fund, make sure its caps on claims are high enough to cover both your maximum life insurance benefit and the cash value of your policy. Even if the limits are high enough, collecting from these funds is a painful and long, drawn-out process. It would probably take at least a year to get your money.

Second, go to the A.M. Best Co. website to look up the Financial Strength Rating for your life insurance company. A.M. Best has been rating insurance companies for more than 100 years and is considered the gold standard. Click on the link for consumers to check on insurance company ratings, and put in your company’s name. If your company is rated A, A+, or A++, it’s on solid ground. If your company is rated B or worse, pack your bags, and head for the hills!

I have a question for you: Do you still need life insurance protection? It sounds as though you are interested primarily in the investment part of the policy. You mentioned that your interest rate is better than you can get elsewhere. But that’s misleading if you don’t need life insurance. The annual “mortality and expense charges” for the life insurance need to be deducted from your interest earnings in order to measure your true return. Mortality charges for a 77-year-old would be quite large and would significantly reduce the earnings on your policy.

If you do need life insurance still, perhaps you don’t need as much as you have. Most life insurance companies with single-premium policies will allow you to reduce your death benefit and still keep the policy and interest rate. With a lower death benefit, the mortality charges being deducted from your earnings would be much smaller, so your earnings would improve significantly. I recommend that you talk to a financial adviser to help you with this decision.

Good luck. I hope this helps.

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