A. In general, if the company that holds your policy is rated A- or better by A.M. Best or has a similarly high rating from Moody’s or Standard and Poors (check ambest.com, moodys.com and standardandpoors.com), you are probably in fine shape.
Of course, we buy life insurance to protect the financial safety of the people we love; do we really have to worry about the odds on the product itself? Right now, a little worry is a good thing if it spurs you to do your homework and check your insurer’s ranking. But even if you find out that the company has a less-than-perfect rating, you may still want to hold on to the policy; you need to check the costs associated with selling before making any decisions. And be aware that a ho-hum rating doesn’t indicate that customers will lose money or that death benefits won’t be paid. More likely, it means that your premium could go up or, if you decide to cancel the policy, you could lose full access to premiums you’ve paid.
The bottom line, says Glenn Daily, a fee-only insurance adviser based in New York, is that insurance is a "relatively secure corner of the financial services marketplace. The life insurance companies didn’t make as many bad investments as other types of companies did." (It was a different, noninsurance division of AIG that dragged that company down.) If you’re still concerned, then diversify just as you do in your other investments: Buy smaller policies from a number of well-rated carriers. That way, if one runs into difficulty, you’ll have the others to fall back on.
Q. We’ve always been told that we should stay in the stock market until our retirement is imminent. Is that still the prudent advice if you’re 40 or 50?
A. Yes. The stock market has proven to be the best tool for growing capital. And don’t try to "time the market" (which means trying to predict the future ups and downs, then buy and sell accordingly); you may get hit with a day like October 13, 2008. That was the Monday after the market’s worst week since 1933, and individual investors were growing more panicky and emotionally drained every day. By the previous Friday, many couldn’t take it anymore, so they sold. And right after the weekend, on Monday the 13th, the Dow Jones Industrial Average jumped 936 points, the largest point gain ever in a single day. Everyone who sold missed the upside, and that cost them a lot of money.
Q. What’s the safest thing to do with $50,000 right now? And yes, I’ve already saved six months of living expenses.
A. If you’re looking for absolutely no risk whatsoever, then you’re talking about cash in an FDIC insured bank account or a CD. CDs are terrific if you can predict your need for the money. By laddering them — buying CDs that mature at different times — you can guarantee that you’ll have access to cash whenever you need it. Shop around, though. Banks looking to attract deposits often give higher rates. You could also consider a U.S. Treasury bill, which you can buy directly from the government (treasurydirect.gov).
Willing to take a little bit of risk? Then consider a safer haven, like municipal bonds, many of which are yielding in the range of three percent. Still, be sure you diversify. Instead of holding a position in only one bond, consider a municipal bond fund, which spreads the risk.
Q. I’ve just retired. How should I adjust my investment strategy to deal with the stock market disaster?
A. People who have just retired are feeling the strain more than anyone. You’ve heard that short-term assets belong in safe places (cash, CDs), while longer-term ones can withstand some risk. If you’re retired, you should always have three years of living expenses in safe investments. This offers substantial protection because when markets are at their lows, you don’t have to sell stocks to fund your normal life. You can use cash for your expenses and give your longer-term investments time to recover.