Understanding the Financial Strength Ratings of Life Insurance Carriers

The primary reason consumers purchase a life insurance policy is to ensure their loved ones have a financial safety net once they’ve passed on. For the vast majority, that safety net isn’t needed for years, even decades, after the policy’s inception. How devastating would it be to have a carrier collect your premium every year, only to find out they’re financially unstable and unable to pay the death claim when it comes up?

While life comes with no guarantees, there are a number of companies that recognize the importance of consumers partnering with financially stable life insurance carriers. They have made it their mission to evaluate each insurers’ financial strength, sharing their findings with the public.

Which Rating Agencies Can You Trust?

There are four major rating agencies:  A.M. Best, Standard & Poor’s, Fitch, and Moody’s. Each has their own method of evaluating insurance companies, but they’re primarily looking at the carriers financial holdings, average amount the insurance company pays in claims, and how much they’re collecting in premiums.

Since each organization evaluates companies differently, it’s a good idea to compare several financial strength ratings before making a financial decision. You will also want to have a clear understanding of each company’s rating scale, as they vary from one to the other.

A.M. Best – Focuses primarily on insurance companies. Access to A.M. Best requires free registration.

Standard & Poor’s – In addition to insurance carriers, Standard & Poor’s rates financial businesses and products. Access to Standard & Poor’s requires free registration.

Fitch – In addition to insurance carriers, Fitch rates financial businesses and products. Access to Fitch requires paid registration.

Moody’s – In addition to insurance carriers, Moody’s rates financial businesses and products. Access to Moody’s will require a free registration process.

Understanding the Ratings

To accurately determine the financial security of a life insurance company you’re considering, you’ll need a basic understanding of their ratings.

Each rating agency will assign one of nine to sixteen financial strength ratings. They are rating long-term financial strength and the carrier’s ability to pay out future claims.

Highest financial strength ratings vary from agency to agency. A.M. Best’s strongest ratings are A++ and A+.  Moody’s top ratings are Aaa and Aa.  Fitch and Standard & Poor’s top ratings are AAA and AA.

Whenever possible, stick with a company who has earned the strongest financial ratings. Steer clear of those who have earned ratings at the low-end of the scale. To ensure accuracy, refer to each agency’s rating scale, located on their website, when making comparisons. Do NOT rely on what the insurance carrier says about their ratings; conduct your own research to ensure accuracy.

While is it natural for price to influence our decision, choosing a life insurance policy based solely on premium is strongly discouraged. Before entering into a legal contract with a carrier, make sure you understand how they conduct business, how long they’ve been in business, and the strength of their financial portfolio, long-term. Your independent insurance agent can help you identify the best policy to fit your family’s needs, which should include assistance researching financial strength and ratings.   

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