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How to Choose the Right Insurance Company

Choosing the right insurance company isn’t as easy as it sounds. It’s not like shopping for a pair of jeans where you’re relatively well-equipped as a consumer in making sound decisions. We can generally tell the right price for a latte and have a good sense of when a pair of shoes is the right fit. The same can’t be said for financial advice or legal fees.

We don’t use these products on a day-to-day basis, so as consumers we don’t have a good sense of what a fair price is. Often we’re not even well equipped to judge the quality of the product.

This goes equally well for insurance. Choosing an insurance company and policy is difficult because this simply isn’t something that any of us use on a day-to-day basis. We make sure we have health insurance or auto coverage, then stick it in a drawer hoping not to need it. So picking a plan and a company is anything but easy.

Still, it doesn’t have to be random. There are a few basic factors you should look for when selecting an insurance company.

1. Check if the insurance company pays its claims

This is arguably the most important question when choosing an insurance company.

Your relationship with an insurer is standard: They set a rate based on the risk they feel you pose. You pay that rate regularly, and in exchange, the insurance company promises to cover your losses in case something happens. This is true for health, auto, renters, and any other form of insurance product.

Now, because of this, insurance companies have developed something of a bad reputation. They police payments with zero tolerance, canceling policies the first time you fall behind. They are… less rigorous about making payments in return.

One of the most consistent problems that consumers have with insurance companies is that they file for losses, only to have their claims rejected. The amount of games that insurance companies play in this regard is beyond the scope of this, or any, article. Entire books have been written on the subject of how insurance companies try to avoid paying claims, but the theme is consistent: if your insurance company doesn’t pay, it’s just a money sink.

Before buying an insurance policy, look up the company’s reputation. Check articles (on sites like our own) and read customer reviews, looking particularly for stories about nonpayment. Ask related experts that you know. If you’re shopping for health insurance, for example, ask your doctor for any opinions on a carrier. When looking at life insurance, check with a financial advisor if you have one.

The most important question to ask about an insurance company is simple. You’ll make your payments on time and in full. Will they?

2. Evaluate their customer service

Call their customer service line a couple of times before committing.

When it comes to insurance, customer service is critical. This isn’t just a complex industry, it involves moving pieces that you won’t foresee or even understand. That’s okay. You don’t manage these issues daily. There’s no reason for you to understand the dedicated terms of health care or the specific coverage exceptions of your auto insurance carrier.

This is where customer service will be critical.

Make sure that you can ask questions and get a clear, committed answer from an insurance company’s customer service representative. Ask if they’re willing to follow up by email, and pay attention if they resist putting anything in writing. Check how long it takes to get a representative on the phone, and whether they’ll have a real conversation or try to hustle you off.

It’s unlikely that you’ll ever fully understand an insurance policy by just reading the contract (and the fine print). Customer service will be essential.

Insurance Company contract
When armed with the right information, you can confidently shop for insurance products from a company that you can trust.

3. Capability of paying bills

Large insurance companies rarely have problems covering their claims. If you buy from someplace like Geico or Aetna, you can be relatively confident that they’ll have the money on hand when you ask them to pay a bill. They may choose not to do so, but that’s a separate issue.

With smaller companies, though, this is a bigger problem.

If you buy insurance from a local company, make sure that they have the financial strength to pay out claims when you file them. The Insurance Information Institute has an excellent list of firms that rate the solvency of insurance companies. (Firms like A.M. Best and Fitch track the finances of insurance companies, rating them on their ability to pay claims when their consumers need it.)

Don’t do business with any insurance company that can’t.

4. Working with an insurance agent

An insurance agent is, essentially, someone who helps you find a plan and policy.

Many agents actually will cost you nothing, as they work on commission. Insurance companies will often pay them a percentage of any plan they sell, meaning that you won’t pay them for the service.

This can lead to a mix of incentives. Depending on the plan you’re looking for, an insurance agent might help you find the right product that you need for yourself and your family. This is particularly true when it comes to finding particularly complicated (or expensive) products such as life insurance and health insurance. An agent can walk you through the long-term benefits of choosing particular plans as opposed to others.

However, be aware that your agent probably will make a commission on this sale one way or another. This means that the more expensive the plan, the more they make by selling it to you.

5. Pricing and coverage

Last, but course not least, what will you pay and what will you get?

Shop carefully. It’s easy for consumers to believe that insurance products are largely flat across companies, but the truth is that each one evaluates risk differently. This means that every company will offer you a different mix of coverage, price, and out-of-pocket expenses based on your circumstances.

Don’t take the first plan you see. Look at multiple different companies and compare what they offer. 

Conclusion

When shopping for insurance, it helps to do adequate research and check if the insurance company meets client expectations. The last thing you want is to experience headaches with poor customer service or unfair settlement practices.

Like most things in life, choosing the right insurance company requires thought and planning, so hopefully, this information can help you make an informed decision.

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