How life insurance is regulated

Shelly Gigante

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Aug 3, 2021

Sure, you purchased life insurance to protect the ones you love, but given the cost of coverage and stakes involved, it is well within your right to ask: Who’s protecting you?

Indeed, consumers spent $186 billion on total life insurance premiums in 20208, according to information provided by market research firm S&P Global Market Intelligence.

All expect that the company they entrusted with their family’s financial well-being will make good on their commitment, but few take steps before they buy to protect their own interests. And it may be wise to understand the regulatory framework within which companies operate in order to know what recourse there is should things go awry.

“Any time a consumer makes this type of purchase, or engages in a financial commitment, it is essential that they do their research and understand what they’re buying,” said Ira Rheingold, executive director of the National Association of Consumer Advocates, a Washington, D.C.-based nonprofit. (Calculator: How much life insurance do I need?)

How state regulators protect consumers

The Insurance Information Institute (III) notes that the same guarantees that exist for bank accounts by the Federal Deposit Insurance Corp. do not exist for life insurance policyholders, but there are numerous other safeguards in place. 1

The life insurance industry is regulated on the state level. State insurance departments maintain strict oversight and verify independently that life insurance companies have the resources to meet their financial obligations.

According to the National Association of Insurance Commissioners (NAIC), which is comprised of chief insurance regulators from all 50 states, the District of Columbia and five U.S. territories, state laws differ but they all protect policyholders in several key ways:

  • Licensing: Insurance agents and brokers must be licensed to sell insurance in the states where they do business. Those that fail to comply with various state laws and regulations governing their activities are subject to fines and license suspension or revocation. They must also participate in continuing education programs to ensure professional standards. 2
  • Product Regulation: State regulators review and monitor the products sold by life insurers, including term life, permanent life, and other products such as annuities. While premiums and rates for life insurance and annuity products are not typically subject to regulatory approval, the NAIC notes they may be monitored to ensure the benefits provided are commensurate with premium charges.
  • Financial Oversight: Through the NAIC, the states maintain the world’s largest insurance financial database, providing a nearly two decade history of annual and quarterly filings of 5,200 insurance companies, which is used to help identify companies that may be in trouble financially. They conduct periodic financial examinations to verify a company’s accounting methods and validate that the information provided in its annual financial statement is accurate. When a company is found to be financially unstable, the state insurance department “takes control of the company,” according to the NAIC. If an insurer must be liquidated or is unable to meet its financial obligations, each state has a guaranty mechanism to help pay the covered insurance obligations of those insurers licensed in the state. To learn more about a state’s specific guaranty association and what it covers, you can visit the website for the National Organization of Life & Health Insurance Guaranty Associations.3

How consumers can protect themselves

Consumers can take steps, too, to protect their own interests when purchasing life insurance.

For starters, Rheingold suggests contacting your state insurance department to find out if the company you are considering buying coverage from, is, indeed, licensed in your state—before you buy.

Ask, too, whether it has many consumer complaints filed against it relative to the number of policies it sold, the III suggests.

Look to companies that have an established reputation and a history of meeting their financial obligation, said Rheingold. “You want a company that has been around for a while,” he said.

Whether you opt for term life insurance, which provides coverage for a fixed number of years, or permanent life insurance, like whole or universal, that provides a death benefit for life so long as the premiums are paid, be aware that life insurance is a long-term commitment.

Thus, policyholders should choose an insurer they can trust to remain financially sound for many years to come, the III indicates on its web site. One way to do that is to research the company’s financial stability with the four major credit rating agencies: A.M. Best, Fitch Ratings, Moody’s Investor Service and Standard & Poor’s. (Check MassMutual’s financial strength and ratings here)

Take note that each rating agency has its own rating scale, and they don’t always align when it comes to scoring an insurance company’s underlying strength. For that reason, the III recommends consumers consider ratings from two or more agencies before they commit.4

The NAIC also has online tools to help consumers research whether an insurance company has any enforcement actions against it, and download financial data and market conduct examination reports.

Roughly 47 percent of women and 58 percent of men in America own some form of life insurance, either an individual policy or a group policy (or both), and all have a vested interest in securing coverage from a reputable company. 5 The state regulatory framework and guaranty funds help protect policyholders, but consumer vigilance is also critical.

“Educate yourself about life insurance,” said Rheingold. “Think about the purpose of coverage, which is to protect your family if you were no longer with them, and determine how much you need, what kind you need and whether you need it at all.”

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This story was published in July 2019. It has been updated.


1 Insurance Information Institute, “How Do I Pick a Life Insurance Company?".

2 National Association of Insurance Commissioners, “State Insurance Regulation: History, Purpose and Structure”, Dec. 6, 2011.

3 NOLHGA, “Policyholder Information” 2017.

4 Insurance Information Institute, “How to Assess the Financial Strength of an Insurance Company” 2021.

5 LIMRA, “2021 Insurance Barometer Study Reveals Common Misconceptions that Prevent Americans From Getting Life Insurance They Know They Need,” April 12, 2021.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.