When you research life insurance companies at Policygenius, we provide three different ratings from third parties to help you evaluate companies: the A.M. Best rating, Better Business Bureau (BBB) rating, and JD Power rating.
A.M. Best is a global credit rating agency that focuses exclusively on the insurance industry; they score insurance companies based on financial strength, i.e., whether they can survive unstable economic situations. The A.M. Best rating scale ranges from A++ (Superior) to D (Poor).
Life insurance terms you should know
Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.
Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.
Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.
Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.
Insured: The person who is covered by the insurance policy.
Policy: The legal document that includes the terms and conditions of your life insurance contract.
Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.
Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.
Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.
Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.
Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.
Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.
Why does a life insurance company’s A.M. Best rating matter?
A.M. Best is a trustworthy source for gauging your provider’s financial strength. Life insurance is financial protection for your family for decades in the future. Once you’ve found a company that suits your needs, a financial rating offers assurance that the insurer can weather market downturns and fulfill its monetary obligations far into the future.
policycentral only offers policies from life insurance companies that have an A.M. Best rating of A- (Excellent) or better. However, even if your insurer goes bankrupt, there are regulations to ensure your policy is honored.
Learn more about how to choose the right life insurance company
How A.M. Best determines its ratings
A.M. Best assigns insurers a letter grade, with or without plus or minus signs, which the company calls notches. To set a company’s grade, A.M. Best compiles and analyzes public and proprietary financial information and data, including:
Balance sheet strength: A company’s cash on hand (liquidity), how efficiently the company generates earnings (quality of capital), quality and appropriateness of reinsurance programs, and more
Business profile: Including market position, management quality, and distribution channels for the company’s products
Enterprise risk management (ERM): Analysis of risk management framework and capability relative to the insurer’s risk profile
Operating performance: Stability, diversity, and sustainability of the company’s earnings sources, plus relationship between earnings and liability
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.
A committee determines the final A.M. Best rating to ensure consistency and objectivity. A.M. Best regularly reviews and updates the ratings as new data becomes available.
A.M. Best credit ratings & definitions
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. [1] 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 range | Category definition |
|---|---|---|
Superior | A++ to A+ | Superior ability to meet ongoing insurance obligations |
Excellent | A to A- | Excellent ability to meet ongoing insurance obligations |
Good | B++ to B+ | Good ability to meet ongoing insurance obligations |
Fair | B to B- | Fair ability to meet ongoing insurance obligations; vulnerable to adverse changes in underwriting and economic conditions |
Marginal | C++ to C+ | Marginal ability to meet ongoing insurance obligations; vulnerable to adverse changes in underwriting and economic conditions |
Weak | C to C- | Weak ability to meet ongoing insurance obligations; very vulnerable to adverse changes in underwriting and economic conditions |
Poor | D | Poor ability to meet ongoing insurance obligations; extremely vulnerable to adverse changes in underwriting and economic conditions |
A.M. Best’s insurance rating system is an easy and trustworthy way to evaluate your life insurance provider’s financial health. However, financial stability is just one part of choosing the right life insurance company. An independent insurance broker like policycentral can help you choose a provider that suits all of your needs.
