Understanding Life Insurance Company Ratings and Financial Strength

When you buy life insurance, you're trusting a company to pay a claim that may not come for 20, 30, or even 50 years. The financial strength of that company matters enormously — and independent rating agencies help you evaluate it.

AM Best: The Industry Standard

AM Best is the oldest and most widely recognized rating agency focused specifically on the insurance industry. Their ratings evaluate an insurer's ability to meet its ongoing financial obligations to policyholders. The scale ranges from A++ (Superior) to F (In Liquidation). For life insurance, you generally want a carrier rated A or better.

An A++ or A+ rating indicates exceptional financial strength. An A or A- rating indicates excellent financial strength. Anything below B+ should be approached with caution for long-term life insurance contracts.

Moody's and S&P Global

S&P Global Ratings and Moody's also rate insurance companies, using broader financial analysis methodologies. S&P uses a letter scale from AAA (Extremely Strong) to D (Default). Moody's uses Aaa to C. These ratings complement AM Best's insurance-specific analysis and provide additional perspective on a carrier's financial health.

Why Ratings Matter

A life insurance policy is a promise — a promise that the company will pay your beneficiaries when you die. If the company goes bankrupt, that promise may not be fulfilled (though state guaranty associations provide some protection). Over a 30-year term policy, a lot can change in the financial world. Choosing a financially strong carrier significantly reduces the risk that your policy won't pay out when it matters most.

The National Association of Insurance Commissioners (NAIC) provides consumer information and tools to research insurance companies, including complaint ratios that show how many complaints a company receives relative to its size.

How to Check Ratings

Before buying any policy, look up the carrier's ratings on AM Best's website. Most major carriers prominently display their ratings on their own websites as well. If you're working with an independent agent, ask them about the financial strength of every carrier they're recommending. A good agent will only present carriers with strong ratings.

NAIC Complaint Ratios

Beyond financial ratings, check the company's complaint ratio through the NAIC. This measures the number of complaints a company receives relative to its market share. A ratio below 1.0 means the company receives fewer complaints than expected for its size. A ratio above 1.0 means more complaints. This data helps you gauge the company's customer service and claims handling reputation.

Price matters, but financial strength matters more. The cheapest policy from a weak company is a bad deal if they can't pay your claim in 25 years. Stick with carriers rated A or better by AM Best, and your family's protection is built on solid ground.