Key to Life Insurance Company Ratings

Life insurance can be a decades-long investment, which is why it pays to thoroughly research your options before deciding on a company. Fortunately, all the major life insurance companies have financial strength ratings, which estimate how likely an insurer is to pay its claims. However, not all ratings are created equal. Here are four things you need to know about life insurance company ratings before you decide on a life insurance company.

  1. Know the players. The primary ratings agencies are A.M. Best, Standard & Poor’s, Fitch and Moody’s. Anyone can access A.M. Best’s financial strength ratings by searching the company’s website. You can also access the ratings at Standard & Poor’s, Fitch and Moody’s once you’ve created a free account on each of their respective websites. While no two agencies evaluate insurance companies in exactly the same manner, ratings are generally based on the following factors:
  • Financial holdings
  • How much a company is collecting in premiums
  • The amount a company is paying in claims
  1. Different agencies have different ratings. Because different agencies have different rating scales, decoding results from multiple agencies can be challenging. An A+ from A.M. Best is the second-to-highest rating out of 15 categories, but an A+ from Fitch is their fifth-highest rating out of 24 categories. Meanwhile, Moody’s doesn’t even offer an A+ rating in the first place. Typically, ratings agencies assign life insurance companies one of nine to 16 long-term financial strength ratings. The higher the rating, the more likely an insurance company is to pay out future claims. Companies with lower ratings are less likely to be able to pay future claims, and might even be in danger of going under. A.M. Best’s strongest financial ratings are A++ and A+, while the highest ratings from Fitch and Standard & Poor’s are AAA and AA. At the other end of the scale, A.M. Best’s lowest rating is S. Fitch and Standard & Poor’s use a D, while Moody’s won’t give anything lower than a C.
  2. Trust the ratings agencies more than the life insurance companies. Most insurance companies use their financial strength ratings as a marketing tool, which can be both good and bad for consumers. Although no insurance company can get away with claiming a false rating, most will exclude lower scores and less-than-favorable comments from their website and other marketing materials. That’s why so many insurance companies appear to have only the highest scores from one or two ratings agencies. To get a clearer picture of a particular insurer’s average rating, search multiple ratings agencies and take the time to read through each agency’s report.
  3. Use common sense. If you’re deciding between an A++ insurance company and an A+ one, chances are you’ll be fine with either. But if you’re choosing between an A+ company and a B+ company, you may want to go with the former. An insurer doesn’t need to have the highest possible rating to be a safe choice, but it’s a good idea to avoid those closer to the bottom of the scale. A.M. Best considers any company rated B or below to be financially vulnerable, while Standard & Poor’s advises consumers to be wary of companies rated BB and below.

SelectQuote provides detailed information about the highly-rated insurance companies we represent, along with their financial strength ratings. To learn more, visit our life insurance companies page.

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