When you’re buying something, the brand name matters.
Insurance is no different.
Don’t you want to make sure you’re paying your premiums to the company who will best represent your needs when making a claim?
Obviously, as a consumer, you can sit around and hunt-n-peck through all the company filings to see where you want to buy from. Even if you’re exceptional at excel, this is a highly mundane task.
And let’s face it, the Better Business Bureau means very little any more.
So where can you go for fast, accurate life insurance company ratings?
How Are Life Insurance Companies Rated?
There are a couple different ways to look at a life insurance company to see how it stacks up against all the others. And yes, there are a lot of companies. While some life insurance carriers specialize in life insurance, others offer it in a long line of other types of insurance, whether it be property and casualty, business insurances, or others.
In order to keep it accurate, there are specific measurements of data which piece together a profile for each company. This is tested against both other companies and the economic environment, which is called stress testing. It combines both profiles of now, as well as projections on how a carrier could perform against hazards which affect our economy, a micro-economy, or even worldly economy.
Life Insurance Company Grades
Life insurance company ratings are very complex, so in order to take all this data and their projections and align them against each other in an understandable manner, a company’s profile is given a grade. This grade ranges from A++ down to F. A++ ratings are the best, and, obviously, being given an F is just like a “fail” grade in school.
So as long as a life insurance company ratings are higher than F, they pass, right? Well, not so much.
Understanding Life Insurance Company Ratings
The scales tend to be a little misleading if you aren’t familiar with them already.
While there are different scales from different ratings agencies, here’s perhaps the most common taken from A.M. Best.
As you can see, even a grade of B is technically a vulnerable company strength rating.
While most of us are used to a B being pretty good in school, the financial industry, and more specifically insurance industry, does not see it the same way. A “Fair” rating means there are blemishes on the financial astuteness of the particular company, and it can mean an issue with either solvency, low cash reserves, or even too much bad debt.
A.M. Best Ratings Chart
Standard & Poor’s
Let’s take another look from another rating agency, Standard & Poor’s.
Standard and Poor’s has a slightly different scale layout and assignment, but it’s virtually the same in meaning. AAA is the best, and a D means the company is defaulting. You can see it also attributes a BB+ to the speculative category, meaning it’s much more risky than one might think. Consumers might be conditioned to think a B is great, but in the financial industries, it’s not necessarily the case.
Standard & Poor Ratings Chart
The Importance of Financial Security In The Life Insurance Industry
Most of the top life insurance companies are A- or better according to A.M. Best. In fact, someone like us won’t even offer a life insurance policy outside of an A- rating, and you probably won’t want to purchase one. The idea behind life insurance is not needing it for a very long time, if at all, remember?
Let’s say you bought a 30-year term life insurance policy. Which company will be the best 30 years from now? It’s not quite like car insurance where you can jump from one carrier to the next depending who’s the cheapest in that year. Life insurance works much differently, and the qualification method is much more complex. So if a mediocre company is willing to offer you a better rate now, how might this affect their ability to pay out in ten years if need be?
One thing to keep in mind is also the size of the company. Certain life insurance company ratings may seem fantastic, but the company might be very small and localized. This may not be the best choice for you, although there are benefits to choosing this type. A larger, nationwide company with a significant portfolio and reserve is must more trustworthy.
Ultimately, it’s up to you, the consumer. Sometimes your budget might prevent you from going with a top carrier, for example. It’s still better to have some coverage in place with a less than perfect company than to have none at all.
If you want specific life insurance company ratings, there are plenty of places to get them. They are updated quite often, but each company may update at a different time.
With specific questions or concerns, feel free to contact us and we’ll do our due diligence for you.