With AIG making major headlines again this week and the future of the insurance giant in question, many life insurance policyholders are wondering whether or not their life insurance policy is safe. One of the big questions being debated in Washington DC is about the concept of AIG, or any other company, being “too big to fail.” So far the government has bailed out AIG to the tune of $165 billion rather than letting them fail, but is your policy safe if the government changes course.

The answer to the question is that your policy is safe. If AIG survives and continues to operate, then your policy will continue to be in force as long as your premium payments are up to date. If AIG fails, the most likely scenario is that another insurance company will take over your policy, keep the terms the same, and begin collecting premiums in the place of AIG. There is a guaranty association in all 50 states that backs life insurance policies as well, which should provide more confidence that your policy is secure.

There are a few risks to abandoning your life insurance policy with any insurance company. First, there could be cancellation fees associated with canceling a policy prematurely. Second, there will likely be surrender charges, decreasing the cash value available for withdrawal in many policies. Finally, the cost of replacing an insurance policy now that you are older could result in substantially higher premiums, especially if your health has declined.

AIG is not the only insurance company in trouble. Many companies have seen their ratings downgraded as their exposure to risky or toxic assets has come to light. You should be aware of the financial health of your insurance company, just as you should your bank or any company that you conduct business with. But to panic and abandon a life insurance policy because of what you’re seeing in headlines can be a very costly and poor decision.

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Tags: AIG, insurance, life insurance, premiums

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