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What is a life insurance company’s AM Best rating?

Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella...

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UPDATED: Mar 19, 2020

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When you buy life insurance it is important to choose a life insurance company with a high rating from AM Best. A life insurance company’s AM Best rating gives you an impartial opinion of a company’s financial strength.

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AM Best analyzes various data and its rating scale in order to provide you with a fair estimate so that you can make a sound decision when it comes to choosing a life insurance company.

The History of AM Best

AM Best is a credit rating company that was founded by Alfred M. Best in 1899. It began in New York and moved to New Jersey in 1965. In 1997 they branched out to London and by 2000 they had established their presence in Hong Kong.

In addition to servicing insurance companies, AM Best provides ranking information for the banking industry and healthcare systems as well. They are also a publisher of books dealing with various aspects of the insurance industry and other analytical material.

Their articles that are published in their own magazines are routinely redistributed and they are viewed as an industry expert. In addition to providing their products and services to the United States, AM Best also works with:

  • Asia Pacific
  • Canada
  • Europe

They have offices in:

  • New Jersey
  • Washington, D.C.
  • London, England
  • Wanchai, Hong Kong

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How AM Best Rates Life Insurance Companies

4 Types of Ratings from AM Best:

  • Best’s Financial Strength Rating – Insurer category is designed to test the financial strength of an insurance company’s commitments. This type of rating is used for property and casualty insurance companies as well as for health, life, and HMO groups.
  • Best’s Issuer Credit Rating- This is assigned to banks, hospitals, and insurance companies to rate the company’s ability to meet its financial obligations. Part of this rating system reviews how a company is performing and also analyzes its balance sheet and business profile.
  • Best’s Debt Rating- This gets used for debt securities and insurance securities to make sure the companies are able to pay out when the securities become due. This category is used for banks as well as hospitals and insurance companies.
  • Best’s Financial Strength Rating – Bank, and this is similar to Best’s Financial Strength Rating – Insurer only it applies to financial institutions. Here AM Best is analyzing a bank’s ability to meet its financial obligations to its depositors.

AM Best uses Best’s Credit Rating Methodology for Global Life and Non Life Insurance. Their full service does not just analyze data and provide ratings, but they publish the information and monitor it as well. If they assign a positive outlook to a life insurance company, then that company’s financial strength is favorable.

  • A negative outlook indicates that the company may be experiencing difficulty.
  • A stable outlook means the company is financially stable and will probably maintain its rating over the next 18 months.
  • A company that is considered secure by AM Best will receive a Superior Rating of A++ or A+, an Excellent Rating of A or A-, and a Good Rating of B++ or B+.
  • Anything less than a Superior Rating denotes a vulnerable company and can be rated as Fair with a B or B-, Marginal with a C++ or C+, Weak with a C or C-, and Poor with a D.
  • Companies that are under regulatory suspension will get a rating of E, companies in liquidation get a F rating, and companies that are suspended are denoted with a S.

Choosing a Life Insurance Company Using AM Best Rating

The reason it is important to choose a life insurance company that has a high rating from AM Best is because an insurance policy is only beneficial if a payout can be made in a claim. Whether you have a $10,000 life insurance policy or a million dollar life insurance policy, if the insurance company does not have the funds to pay out the death benefit, your policy is not worth the premiums you paid.

Most insurance companies are not selling policies that they cannot back; however, a company that is experiencing difficulty may find themselves in a position where they cannot payout a multitude of benefits that are sudden and unexpected all at one time. For this reason, it helps to purchase a policy from a company who has a secure and stable AM Best rating. A life insurance policy is meant to last a lifetime, so you need a life insurance company who will be there for a lifetime as well. You can find top rated life insurance companies now by requesting free quotes from this page.

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