More on Life Insurance
More on Life Insurance
Updated November 6, 2020|3 min read
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When you research life insurance companies at Policygenius, we provide three third-party ratings to help you evaluate companies: the A.M. Best Rating, Better Business Bureau (BBB) Rating, and J.D. Power Rating.
J.D. Power and BBB both rank customer satisfaction, while A.M. Best rates a company’s financial health.
A.M. Best is a global credit rating agency established in 1899 that focuses exclusively on the insurance industry; they score insurance companies based on their ability to meet their financial obligations, i.e., whether you can count on them to pay out claims like the life insurance death benefit. The A.M. Best rating scale ranges from A++ (Superior) to D (Poor).
Policygenius only offers policies from insurance companies that have an A.M. Best rating of A- (Excellent) or better.
A.M. Best grades the financial stability of insurance companies from A++ to D
Ratings correlate to how reliably a company can fulfill their financial obligations to consumers
Because life insurance may not pay out for several decades after being purchased, financial stability is an important factor in choosing the right company
When you buy life insurance, you are purchasing protection for your family for decades to come. Term life insurance usually lasts for 10 to 30 years; permanent life insurance policies last for the rest of your life. It’s important to choose a life insurance company that you’re confident will be around and able to pay claims for the entire length of your policy.
A.M. Best insurance ratings are a reliable way to gauge your provider’s financial stability. However, know that there are also regulatory safeguards to ensure claims get paid even in the rare event that a life insurance company goes bankrupt.
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A.M. Best’s ratings consist of a letter grade, with or without plus or minus signs, which they call notches. A grade is given to an insurance company based on its ability to meet its ongoing financial obligations.
The credit ratings are based on a rigorous process during which A.M. Best compiles and analyzes public and proprietary financial information and data, including quarterly financial statements, for each company. A.M. Best regularly reviews and updates the ratings as new data becomes available. A.M. Best looks closely at data within four main categories:
Balance sheet strength — includes liquidity (i.e., a company’s cash on hand), quality of capital (i.e., how efficiently the company generates earnings), quality and appropriateness of reinsurance programs, and more
Operating performance — includes focus on the stability, diversity, sustainability of the company’s earnings sources, plus relationship between earnings and liability
Business profile — includes market position, management quality, distribution channels for the company’s products, and more
Enterprise risk management (ERM) — includes analysis of risk management framework and capability relative to the insurer’s risk profile
A committee determines the final A.M. Best rating to ensure rating consistency and objectivity in evaluation of the data.
Insurance companies that receive high ratings generally have strong and predictable cash flows; competitive advantages in branding and customer experience; and diverse earnings and revenue streams, among other factors.
The table below summarizes how A.M. Best defines each of the grades on their ratings scale.
Each rating from A to C also includes notches — either a minus sign or a second plus sign — which reflect some variation in financial strength within that grade level. For example, a "Good" company likely to meet their financial obligations that’s especially strong in the category might receive a B++ rather than a B+.
|Rating category||Rating symbols and notches||Category definitions, per A.M. Best|
|Superior||A++ to A+||Assigned to insurance companies that have a superior ability to meet their ongoing insurance obligations.|
|Excellent||A to A-||Assigned to insurance companies that have, in our opinion, an excellent ability to meet their ongoing insurance obligations.”|
|Good||B++ to B+||Assigned to insurance companies that have a good ability to meet their ongoing insurance obligations.|
|Fair||B to B-||Assigned to insurance companies that have a fair ability to meet their ongoing insurance obligations. Financial strength is vulnerable to adverse changes in underwriting and economic conditions.|
|Marginal||C++ to C+||Assigned to insurance companies that have a marginal ability to meet their ongoing insurance obligations. Financial strength is vulnerable to adverse changes in underwriting and economic conditions.|
|Weak||C to C-||Assigned to insurance companies that have a weak ability to meet their ongoing insurance obligations. Financial strength is very vulnerable to adverse changes in underwriting and economic conditions.|
|Poor||D||Assigned to insurance companies that have a poor ability to meet their ongoing insurance obligations. Financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions.|
Below are the A.M. Best ratings for each of the 21 largest life insurance companies.
|LIFE INSURANCE COMPANY||A.M. BEST RATING|
|MetLife (Metropolitan Group)||A+|
|Minnesota Life (Securian)||A+|
|Mutual of Omaha||A+|
|New York Life||A++|
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If you want to have extra confidence in the long-term stability of your life insurance provider, A.M. Best’s insurance rating system is an easy and trustworthy way to evaluate an insurer’s financial health. However, financial stability is just one part of choosing the right life insurance company — an independent insurance broker like Policygenius can make sure you choose a provider that suits all of your needs.
A.M. Best provides credit ratings for insurance companies based on their financial stability, including, most importantly, their ability to meet their financial obligations.
Ratings are given on a graded scale of A++ to D, where A++ indicates a Superior financial rating and D indicates a Poor financial rating.
A committee at A.M. Best evaluates public and proprietary data relating to several factors, including a company’s stability, the distribution of its products, liquidity, and risk management, to determine final ratings.
While there are other safeguards for life insurance companies that go out of business (a rare occurrence), a life insurance company with a strong financial rating offers extra assurance that they will be able to pay out your policy’s death benefit long after you purchase your policy.