Life insurance regulations are set in place at both the federal and state level, which means there can be a lot of variation in requirements across the country. Life insurance federal regulations are instated because of the massive amounts of funds that are entrusted to insurance companies- usually as much as 50 to 200 billion dollars. Federal regulations maintain that the funds are used responsibly for the benefit of the general public and that the insurer doesn’t jeopardize the money with any risky investments.
Initially, life insurance federal regulations were put in place for two purposes. They (a) ensure that the financial solvency of the insurer is maintained, ensuring that all policyholders receive the payout that they are entitled to should the terms of the policy come to fruition. They also (b) regulate the service provided to the policyholders, ensuring that everyone is treated equally by the insurance companies. This mandatory regulation helps keeps rates down and avoids large fluctuations of policy rates in various parts of the country.
Power to the States
At the federal level, there isn’t any set agency in charge of maintaining and enforcing life insurance federal regulations. This is instead left up to the state, which also has the power to put in place their own regulations and policies. For insurance providers that have branches spanning multiple states, the regulations pertaining to that company are based on the state in which it was incorporated. Prudential, for example, opened its first branch in the state of New Jersey, so all branches of Prudential, no matter what state they are in, are subject to New Jersey state regulations as well as life insurance federal regulations.
Effect On Rates
So how does this affect you and your rates? It depends on where you live. Despite the fact that states can enact their own regulations, it’s the federal regulations on life insurance that determine how well the policyholders are treated and that also ensure a payout. They have some say in the price of the insurance premiums, but for the most part it’s up to the individual states to decide reasonable ranges. Depending on what state you live in, you could be paying more or less for your life insurance policy. It’s important to know what regulations your state has in place.
It’s always important to compare the different rates in your area. Companies that were incorporated in different states, like in the Prudential example, are operating under different regulations and so may have different minimum rates or coverage policies. Comparing rates online is one of the easiest ways to make an educated decision about the company that you would like to go with for life insurance. Search tools like the one above will take your zip code and scan all the websites of applicable insurance companies, and then provide you with a comprehensive list within seconds.
Life insurance federal regulations are put in place to protect you, the policyholder, from unscrupulous insurance companies and hidden fees. It’s still vitally important to do your own research, however, and it’s easier than ever to get all the information you need online. For detailed information on each state’s life insurance regulations, you will find everything you need in our blog section.