How to Measure Your Life Insurer's Health

With some luck, it will be a long time between the day you purchase life insurance and the day it pays out to your beneficiaries. In the meantime, life insurance offers another benefit: the peace of mind that your loved ones will be taken care of after you're gone.

But that peace of mind depends on the condition of the company providing your life insurance. Having said this, you may be asking yourself: What are the key elements to look for in determining the heath of your life insurance company?

In order to answer this question, we first need to understand the critical elements of a life insurance company. These include surplus adequacy, asset quality and diversification, liquidity, earnings and profitability. These financial measures are all key in determining an insurance company's rating and are good indicators of a company's financial strength.

If you are wondering how to interpret these measures, here's a brief explanation about what they can tell you:

Surplus

Surplus is the difference between the provider's total assets and liabilities. This can provide for adverse experience in mortality, morbidity, investments and other pricing factors.