Why Life Insurance Carrier Financial Strength Matters: Lessons from the PHL Variable Collapse

Introduction

You buy life insurance to protect your family. To sleep better at night. To know that if something happens to you, the people you love will be taken care of.

But here is what many people do not think about:

What if the insurance company that issued your policy is not there when you need them?

In 2020, the Pennsylvania Life Insurance Company (PHL Variable) collapsed. Thousands of policyholders lost coverage. Billions in death benefits vanished. Families who thought they were protected were left with nothing.

This is not a horror story to scare you. It is a lesson in why the financial strength of your life insurance company matters—perhaps more than the policy itself.

What Happened with PHL Variable?

PHL Variable was a subsidiary of the Penn Mutual Life Insurance Company. For decades, it sold variable life insurance and variable universal life policies—products that let policyholders invest their cash value in sub-accounts similar to mutual funds.

Here is what went wrong:

• Poor risk management – The company took on too much risk in its investment portfolio
• Inadequate reserves – It did not hold enough money to cover future claims
• Regulatory failures – State regulators missed warning signs
• Market losses – During economic downturns, the company investments lost value rapidly

In 2020, PHL Variable was ordered into liquidation. The company could not pay its claims. Policies were terminated. Death benefits were gone.

For many families, the realization came too late: their insurance company was not as secure as they thought.

Why This Matters for You

When you buy life insurance, you are making a long-term bet. You are paying premiums now in exchange for a promise—that when you die, your family will receive a death benefit.

That promise is only as good as the company making it.

Here is the uncomfortable truth: not all insurance companies are created equal. Some are rock-solid, with centuries of history and trillions in assets. Others are newer, riskier, or poorly managed.

The difference could determine whether your family gets paid.

How to Evaluate an Insurance Company Strength

Before buying any life insurance policy, research the insurance company. Here are the key factors to consider:

1. Financial Ratings

Independent rating agencies evaluate insurance companies financial strength:

• A.M. Best – Rates insurance companies ability to pay claims
• Moody – Assesses credit and financial strength
• Standard and Poor (S&P) – Evaluates financial stability
• Fitch – Provides independent ratings on insurance companies

Look for companies rated A or higher. These ratings indicate strong financial foundations and the ability to pay claims even during economic downturns.

2. Company History

How long has the company been in business? Established companies with long track records have:

• Proven ability to survive market cycles
• Historical data on policy performance
• Institutional knowledge and risk management

Be cautious with newer insurers or those that have gone through mergers or acquisitions.

3. Assets Under Management

Larger companies with more assets generally have:

• More capital to pay claims
• Greater diversification of investments
• More resources to weather economic storms

Look for companies with tens or hundreds of billions in assets.

4. State Guaranty Associations

Most states have life insurance guaranty associations that provide protection if an insurance company fails. These typically cover:

• Up to $300,000 in death benefits
• $100,000 in cash value

However, this coverage has limits—and it varies by state. Do not rely on guaranty associations as your primary safety net.

5. Product Type Matters

Certain products carry more risk than others:

• Term life insurance – Lower risk; simpler structure
• Whole life insurance – More stable; guaranteed cash value
• Variable life/UL – Higher risk; cash value invested in market

Variable products like the ones PHL Variable sold are more susceptible to company failures because they rely on investment performance.

The Bottom Line

The lesson from PHL Variable is clear: your life insurance is only as good as the company behind it.

When shopping for life insurance:

• Research the insurance company financial strength
• Choose a company with high ratings (A or better)
• Work with an advisor who considers carrier risk
• Do not just shop for price—shop for stability
• Consider splitting coverage among multiple carriers

Your family financial security is too important to leave to chance. The peace of mind that comes with knowing your insurance company will be there when it is needed—that is worth more than any policy features or price tag.

If you are unsure about the financial strength of your current coverage, or if you are shopping for new coverage, let us talk. Making sure you are with a strong carrier is one of the most important decisions you can make.

Disclaimer: This article is for educational purposes only and does not constitute financial or insurance advice. Past performance of insurance companies does not guarantee future results. Consult with qualified professionals before making any insurance decisions.