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.
Know the Players
The primary rating agencies are A.M. Best, Standard & Poorâ€™s, Fitch and Moodyâ€™s. Anyone can access A.M. Bestâ€™s financial strength ratings by searching the companyâ€™s website. You can also access the ratings at Standard & Poorâ€™s, FitchÂ and Moodyâ€™sÂ once youâ€™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
Different Agencies Have Different Ratings
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, Moodyâ€™s doesnâ€™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. Bestâ€™s strongest financial ratings are A++ and A+, while the highest ratings from Fitch and Standard & Poorâ€™s are AAA and AA. At the other end of the scale, A.M. Bestâ€™s lowest rating is S. Fitch and Standard & Poorâ€™s use a D, while Moodyâ€™s wonâ€™t give anything lower than a C.
Trust the RatingÂ 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. Thatâ€™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 insurerâ€™s average rating, search multiple ratings agencies and take the time to read through each agencyâ€™s report.
Use Common Sense
If youâ€™re deciding between an A++ insurance company and an A+ one, chances are youâ€™ll be fine with either. But if youâ€™re choosing between an A+ company and a B+ company, you may want to go with the former. An insurer doesnâ€™t need to have the highest possible rating to be a safe choice, but itâ€™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 & Poorâ€™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.