When choosing a life insurance company, one of your primary considerations should be their degree of financial strength. A company with the lowest premiums is not necessarily the best choice—you should choose your insurer based on their ability to pay the contracted benefits and settle claims.
The simplest way to verify an insurance company’s financial solidity is to check their financial strength ratings.
Five independent agencies—A.M. Best, Fitch, Moody’s, Standard & Poor’s, and Weiss—rate the financial strength of insurance companies. Each has its own rating scale, its own rating standards, its own population of rated companies and its own ratings for that population of companies. Each agency uses numbers or plusses and minuses to indicate minor variations in rating from another rating class.
You should consider a company’s rating from two or more agencies before judging whether to buy or keep a policy from that company. Moreover, agencies will announce changes of ratings on any day. It’s probably prudent to check annually on the ratings of any company in which you’re interested.
Some points to consider when reviewing a company’s financial strength:
* Don’t rely only on what the insurance companies say about their ratings from these agencies. Companies are likely to highlight a higher rating from one agency and ignore a lower one from another agency, or to select the most favorable comments from a rating agency’s report.
* To use the ratings from more than one independent agency, you need to understand that each agency’s rating code is different from the others. For example, an A+ from A.M. Best is the next-to-top rating of its 15 categories, but an A+ from Fitch or S&P is their 5th-highest rating (out of 24 categories for Fitch, and out of 19 categories for S&P). Moreover, Moody’s doesn’t have an A+ rating.
* Many insurance companies market their products under a brand or marketing name. Be sure you know the names of the underwriting companies that market under that brand name when looking up a company’s ratings. For example, AIG markets life insurance in the United States under the marketing name “AIG American General,” but several companies underwrite products under that name, including American General Life Insurance Company and AIG Life Insurance Company. Check the company’s Web site for a complete list of the underwriting companies for that brand name.
