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Financial strength ratings for life insurance

Learn how to decode the ratings assigned to insurers.

Updated

As a policyholder, you count on your life insurance company to pay out a claim at any time. That’s where financial ratings come into play. Independent agencies investigate insurers’ ability to pay claims — but ratings differ among companies.

What are financial strength ratings?

Financial strength ratings point to a life insurance company’s ability to meet its financial obligations — like paying claims.

In the US, four major ratings agencies assess insurers’ financial stability:

  • A.M. Best
  • Moody’s
  • Fitch
  • Standard & Poor’s

Ratings are based on the insurer’s financial holdings and how much money it’s collecting in premiums versus paying out in claims.

Do insurers have to pay to get a rating?

A.M. Best and Fitch require insurers to pay for registration — and therefore, a rating — while Moody’s and Standard & Poor’s offer free registration.

When you’re comparing providers, be aware that companies highlight the higher ratings they receive — and ignore the lower ones. You can run your own search on each agency’s site

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Why financial strength matters

Financial strength ratings confirm that your insurance company has the cash reserves to pay out claims. If you come across an insurer with a low rating, that means there’s a chance they won’t be able to pay future claims — or they’re at risk of going under.

When you buy life insurance, you’re investing in your family’s financial future. You don’t know when your beneficiaries will file a claim. Whether you die in five years or thirty years, you need to make sure your insurance company can pay out the full death benefit to your loved ones.

How to interpret financial strength ratings

Each ratings agency uses its own grading scale, rating labels and unique criteria to evaluate insurers. As a result, it’s common to see different ratings for the same company. For example, an A+ is the second-highest rating from A.M. Best and the fifth-highest for Fitch and S&P.

This is the spectrum of ratings issued by each agency from highest to lowest. Note that labels and descriptions reflect that agency’s internal ratings.

AgencyRatings from best to worst
A.M. Best
  • A++ (Superior)
  • A+ (Superior)
  • A (Excellent)
  • A- (Excellent)
  • B++ (Good)
  • B+ (Good)
  • B (Fair)
  • B- (Fair)
  • C++ (Marginal)
  • C+ (Marginal)
  • C (Weak)
  • C- (Weak)
  • D (Poor)
Fitch
  • AAA (Highest quality)
  • AA (Very high quality)
  • H (High quality)
  • BBB (Good quality)
  • BB (Speculative)
  • B (Highly speculative)
  • CCC (Substantial credit risk)
  • CC (Very high credit risk)
  • C (Near default)
  • RD (Restricted default)
  • D (Default)
Moody’s
  • Aaa (Highest quality, with minimal risk)
  • Aa (High quality, with very low credit risk)
  • A (Upper-medium grade quality, with low credit risk)
  • Baa (Medium-grade quality, with moderate credit risk)
  • Ba (Medium-grade quality, with substantial credit risk)
  • B (Medium-grade quality, with high credit risk)
  • Caa (Poor quality, with high credit risk)
  • Ca (Poor quality, and likely to or nearing default)
  • C (Lowest quality, with little prospect for recovery)
Standard & Poor
  • AAA (Extremely strong)
  • AA+ (Very strong)
  • AA (Very strong)
  • A+ (Strong)
  • A (Strong)
  • BBB+ (Strong — but adverse economic conditions or a change in circumstances could affect its capacity to meet financial commitments)
  • BBB (Strong — but a change in circumstances could make it vulnerable to nonpayment)
  • BB+ (Speculative)
  • BB (Speculative)
  • B+ (Speculative)
  • B (Speculative)
  • CCC (Significantly speculative — meaning adverse conditions could affect the ability to pay out claims)
  • CC (Significantly speculative)
  • C (Significantly speculative)
  • D (Default or bankruptcy)

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Bottom line

When you’re researching life insurance companies, take financial ratings into account. These ratings reveal a company’s financial footing and whether they’re likely to pay out claims in the future. If you’re looking at highly-rated insurers, you can be confident that your loved ones will see the money you left them.

Financial ratings aren’t the only factor to consider when choosing an insurer. When weighing your options, compare life insurance providers and their ratings against your budget and long-term goals to get the strongest policy and premium.

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