There is an almost overwhelming set of decisions to make when shopping for life insurance, the type, length, death benefit, and beneficiary. When you throw in various riders and endorsement options is it any wonder that many consumers fail to really think about the exact life insurance company that they choose? But how should you – the consumer decide which life insurance company to trust? Do you base your decision off of the ads and marketing? Or should you focus on word of mouth or the captive life insurance agent that you met at the Elks Club?
But there is a better way – In the ideal world you would first consider the overall financial health of a given insurer. But how do you do that?
About Life Insurance Ratings
There are numerous ways to rate life insurance companies, from surveys done by JD Power to your state Insurance Regulators. However the type of life insurance rating that may be most important is called the Financial Strength Rating. A Financial Strength Rating is an “opinion” written by a credit rating agency about a given insurers ability to meet its claims and ongoing obligations. Financial Strength Ratings are slightly different than Credit Ratings as they take into account policies and claims. Financial Strength Ratings, sometimes abbreviated FSRs, are created by the big three credit rating agencies: Standard and Poor’s, Fitch, Moodys, and insurance rating specialist AM Best.
Why Consumers Should Check Life Insurance Ratings
Consumers should check financial strength ratings to help them assess if the proposed life insurance company will be able to pay out insurance claims in the future. Companies with a lower financial strength rating have a higher chance of either falling into a state regulator’s control or becoming insolvent. Insurers that have a higher financial strength rating correspondingly would have a lower chance of becoming insolvent or other. Consumers benefit from buying life insurance from higher rated carriers because it will potentially allow them to circumvent poorly run insurance conglomerates and be more assured of receiving the agreed upon pay out in the event of a payable claim.
The need to check financial strength ratings is potentially highest with life and annuities because clients will often keep a these types of insurance products for 20+ years. In the case of whole and universal life some clients will end up keeping their life insurer for their entire life. Therefore taking a little extra time to fully understand the financial trajectory can pay huge dividends down the road.
How to Check Financial Strength Ratings
For consumers of the digital age its not all that difficult to check a companies life insurance rating. Keep in mind that there are essentially four different financial strength ratings from four different agencies. Each rating agency uses their own lettering system and lettering grades, therefore it is not really possible to check one financial strength rating from one rating agency vs another financial strength rating from another rating agency To check a financial strength rating with insurance specialist AM Best, merely go ambest.com and type in the name of the insurer that you want to check.
The Corporate Entity:
Checking financial strength ratings with some insurers can be confusing as many conglomerates have numerous different corporate entities. Understanding exactly which entity you are receiving a quote from may be the hardest part of checking the rating. If you are confused or do not understand, ask your life insurance agent.
Best Practices When Checking Financial Strength Ratings:
- Compare Apples with Apples. Choose One rating agency to compare all of your potential carriers.
- Consider doing a full secondary check with a different second rating agency.
- Try and check the financial strength rating yourself rather than depend on an out of date document or website.
- Always check financial strength ratings whenever you are considering any type of insurance.
Author: Scott W Johnson is the owner of Whole Vs Term Life Insurance.