When researching life insurance companies, you probably look for quality products, a range of options, and financial strength ratings. But amid your research, you might be wondering, just what do those financial strength ratings mean?
The ratings agencies also use different ways to rate insurance companies, so a certain rating from one agency doesn’t exactly align with another’s.
Here’s a quick guide to make those ratings a little clearer.
According to Insurance and Estates, “there are four ratings agencies you need to be aware of when you are evaluating different insurance companies overall financial health,” which are A.M. Best, Moody’s, Fitch, and Standard & Poor’s.
1 Insurance and Estates goes on to note that while the credit ratings agencies use different criteria when rating insurance companies, “some of the main areas of interest the agencies consider” are:
- The insurance company’s ability to pay claims
- How well the company is capitalized and how leveraged its assets are
- The company’s investments and risks
- Its business structure and type of corporate governance
- The liquidity of the company’s assets
- Whether the company has proper risk mitigation
The ratings agencies also use different ways to rate insurance companies, so a certain rating from one agency doesn’t exactly align with another’s. According to NerdWallet, these agencies “typically assign life insurance companies one of nine to 16 long-term financial strength ratings, the highest of which mean that the company is very likely to be able to pay out future claims.”2 NerdWallet tells us that A.M. Best’s strongest ratings are A++ and A+; Fitch and Standard & Poor’s are AAA and AA; and Moody’s are Aaa and Aa.
When you’re considering from which company to purchase life insurance, it’s wise to do your research and know the company’s financial strength ratings. Financial strength is a good indicator of how well the company is projected to be able to pay claims, which at the end of the day, is what you’ll be counting on.