Life Insurance Ratings Explained

Life insurance is an important purchase, and hopefully a long term one. When you buy a life insurance policy you are buying an investment in the future, and counting on the fact that the company behind the policy will be there when they are needed most. In order to reassure consumers and help them make the right choice, sellers of insurance are rated by independent rating agencies. It is the job of these independent agencies to examine the financial condition of the companies they rate and issue unbiased assessments of their ability to pay claims.

There are many organizations that provide these kinds of ratings, but the most widely known – and widely used – are AM Best, Standard and Poors, Moodys and Fitch. It is important for life insurance shoppers to understand how these companies work and how to use those ratings to evaluate the companies under consideration.

When it comes to life insurance company ratings AM Best is perhaps the best known name. Unlike the other ratings companies mentioned above, AM Best has chosen to focus only on the insurance industry. Many feel that this focus makes AM Best better suited to evaluate the health of insurers than the other ratings agencies. As part of the rating process AM Best examines the financial health of the company and then uses that information to rate the company’s ability to pay its claims.

Standard and Poors is another well known rating company, but unlike AM Best Standard and Poors does not operate solely in the insurance arena. In addition to its insurance rating services, Standard and Poors also provides equity research, mutual fund ratings and more.

Another popular ratings company is Moodys, and this firm provides a number of financial research services for both corporations and the government. Like the other ratings agencies Moodys also issues its assessment of the creditworthiness and financial health of various life insurance companies.

The fourth member of this rating agency group is Fitch, and like Moodys and Standard and Poors this company provides a number of diversified financial services. The insurance company rankings provided by Fitch are only a part of the total company, but many people respect the accuracy of the ratings they provide.

When it comes time to evaluate the quality and stability of a particular life insurance company it is often a good idea to look at each rating agency’s ranking of the company and take them together as a group. Even though each of the four major rating agencies typically does a great job, a single rating alone may not tell the whole story. Looking at the ratings as a whole can provide a more complete – and more accurate – picture of the true financial health of the company.

For instance, if you see a glowing assessment from one rating agency but a more cautious report from the other three, it may warrant further investigation. Likewise if one rating agency gives a particular insurer a bad report but the others provide only positive reports, it may be a good idea to investigate the health of the company on your own. Ratings are certainly important, but it is often necessary to go beyond those mere numbers and do some of your own research. After all you want to make sure that life insurance company is there when you and your family need it most.