How to Use the Rating Agencies as a Guide When Buying Life Insurance

By Sanford Ellowitz on March 1st, 2010

Buying a life insurance policy is a long-term commitment, for both you and the insurance company that issues your policy.

On your part, you agree to pay your premiums for the duration of the policy, however long that may be. On its part, the insurance company agrees to pay any eligible claims during that time period.

Both parties sign a contract consenting to uphold their side of the agreement, most of which extend for many years.

Check the Insurance Carrier's Financial Stability

As a client purchasing a significant product for you and your family, you should spend a good deal of time reviewing the financial stability of any insurance company before trusting or committing money to them.

Insurance is under the jurisdiction of each individual state, not the federal government, and often rules and regulations vary from state to state. While some states have funds set aside for companies that encounter financial difficulties, keep in mind that unstable organizations may not honor their commitments to clients who file claims, even if the clients have been paying premiums for several years.

Size Does Not Always Matter

Do not simply assume that any large or well-known company is financially stable. There are some highly dependable small insurance companies who are known to pay their claims in a timely and honest manner.

Rating Agencies

To help guide your decision about which company to use, check the ratings assigned by five independent agencies:

  • A.M. Best
  • Fitch
  • Moody's
  • Standard and Poor's
  • TheStreet.com.

These five organizations review numerous companies' claim-paying histories and abilities. They then make a judgment, based on their own standards, and assign each carrier a rating. The ratings are in the form grading letters (A, B, C, D, F).

Not only does each agency have its own way of arriving at a rating, but the value of the letter ratings differ from one organization to another. An "A" may be the highest rating from one agency, but another agency may use "AA" or "AAA" as their highest level ratings.

Comparing Companies

To best interpret each rating agency's grades, examine each grade and its accompanying description. For example, "A" and "AAA" may both be described as "excellent" by separate rating agencies. If your insurance company's grades meet that description at all five agencies, it is likely a dependable choice.

Remember, these grades are not ironclad guarantees. They are based only on what the agency knows at the time the ratings are assigned. Companies do get upgraded and downgraded over time.

Go Online To Compare Life Insurance Quotes

To shop around for the best life insurance policy that can effectively protect you and your family, check online and compare quotes from multiple insurance companies. Make sure you get the most appropriate and affordable policy for your needs.

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