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What is an A.M. Best Rating?

When you purchase life insurance, you are making a long-term investment in your family’s future financial security. Ideally, your family will not be ready to collect on this policy for a long time to come but when they do, you want a company which will be in business and able to pay your survivor’s claims ten, twenty, thirty or even fifty years from now. Given our troubling economic climate, how can you possibly be sure that the company you choose will even be around at the point, much less able to pay a large life insurance benefit to your family?

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Of course, no one can be positive of anything that will happen in the future. However, you can minimize your risk by choosing a company that has a history of solid financial backing and performance. There are several ways you can determine if this is the case with the company with which you are considering doing business.

Choosing a Life Insurance Company

First, you can ask for information about the company’s history or look it up on the internet. Generally speaking, the longer a company has been in business, the better. A long-lived company has survived financial ups and down, economic depression, and the rise in claims which has resulted in the past twenty years. Of course, longevity is not the only factor you should consider, but it is one of the quickest indicators that the company is not a “fly-by-night” operation which will take your money and leave you with insurance coverage.

Another way to see how your proposed insurance company is doing financially is to consult one of the independent firms which surveys and analyzes company information. There are several well-respected firms which perform annual reviews of life insurance companies, and one of the most well-known is A. M. Best.

Who is A.M. Best?

A.M. Best is one of the oldest credit-analysis agencies in the world, having operated continuously since 1906. A. M. Best employs independent analysts who compare a company’s debt structure and payment history and issue a rating based on these and other factors. In order to receive a rating, the company in question submits a balance sheet to A.M. Best which outlines assets, liabilities, and depreciation and other cost-related factors. The analysts at A. M. Best then compute these facts and other information and give the company a rating. A. M. Best’s analysts issue three types of ratings: financial strength, issuer credit, and debt ratings.

The financial strength rating is the most important in terms of choosing a life insurance company, although other ratings can also give the purchaser valuable information about the company. Financial strength is assigned only to insurance companies, and outlines the company’s ability to pay its financial obligations if called on to do so.

The A. M. Best Company uses a scale of ratings which translate from letter “grades” to certain descriptors. A. M. Best assigns the following “grades”: A++ and A+ (Superior), A and A- (Excellent), and B++ and B+ (Good). These ratings indicate a “secure” company which has generally been judged to be able to pay its claims in a timely manner and without severe damage to the company’s infrastructure. If a company receives a “vulnerable” rating, A. M. Best does not warrant its ability to pay claims, and assigns it one of the following grades: B, B- (Fair), C++ or C+ (Marginal), C or C- (Weak), D (Poor), E (Under Regulatory Supervision), F (In Liquidations), or S (Suspended). Any company with one of these ratings is probably not a safe bet for your life insurance needs.

Why are A.M. Best Ratings so Important?

Consumers are not the only ones who use A. M. Best ratings when looking at insurance companies. One of the biggest advantages to having a high A. M. Best rating is that investors will be attracted to the company and willing to risk financial ventures to help the company grow. A good A. M. Best score also makes the company attractive in the insurance market itself. When a company decides to branch out into other areas of insurance, underwriters are attracted to the new company based in large part on how it has handled its obligations in other areas, and the A. M. Best rating is one good way to gauge this factor. Finally, independent insurance agents often make choices about which companies to sponsor based on the A. M. Best rating of a particular company, which will give the agents marketability for the company’s products. All in all, a high A. M. Best rating can insure the success of an insurance company, and a low score can insure its failure.

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