Whether you’re considering whole life insurance or term life insurance, you’re looking at a commitment of anywhere from 10 to 30 years. And, since you’re probably buying life insurance to provide financial security for your spouse or dependents, you want to be sure that your life insurance company will be around to provide it. You can rely on the insurance company’s published literature, but you’ll get a more objective assessment by doing a little research on your own to check a life insurance company’s financial rating.
Fortunately, there are independent firms that rate life insurance companies for financial strength. While none of them has a crystal ball that can predict the future, assessing historic and current performance should help you make smarter choices.
Among the best known sources for life insurance company ratings include Standard & Poor’s, A.M. Best Company and Moody’s Investor Service. Each of the rating services use different rating methods, but typically they’re assign letter grades, based on information provided by the insurance companies via interviews and published data such as annual reports, as well as data from their own reliable sources to arrive at their ratings.
Any grade of A or higher (AAA is the highest grade available) indicates solid financial strength. The degrees of grades – AA versus A, for example – denote that the lower rated company may be more likely to be affected by an adverse business climate. Plus or minus signs following letter grade ratings show relative standing within the major rating categories. As a rule of thumb, you should look for life insurance companies whose ratings indicate very good to excellent or very strong to extremely strong.
All of the aforementioned companies have public websites and make at least some of their life insurance company ratings information available for free. More in-depth reports are usually available for a fee, but unless you’re planning to buy shares in the company, you can probably make do with the freebie rating.
Make sure that you’re using the most current information available. Check the rating company’s website for updates or call them to obtain the latest published ratings.
Be aware that all of the life insurance rating companies will caution you against construing their ratins as a recommendation to purchase or discontinue any policy. They are merely providing another tool to help you make a more informed decision.