How to Judge Whether a Life Insurance Company Will Pay

A rating agency studies an insurance company's finances and gives its opinion, written as letters, of how able the company is to pay what its policies promise.

AM Best is a rating agency that focuses on insurance. It calls its opinion a Financial Strength Rating and describes it as an independent opinion of an insurer's ability to meet its ongoing obligations on its policies and contracts. Put simply, it's AM Best's view, at the time it gives the rating, of how well the company can keep paying what it owes.

AM Best looks at four main things: the company's capital against the risks it has taken on, whether its business makes money, what it sells and where, and how well it manages its own risks.

The companies AM Best rates pay it for their ratings. AM Best says that can look like a conflict of interest, and that it has policies to keep its ratings independent.

A rating is one agency's opinion on one question: how well can this company pay what it owes? It's easy to read more into it than that. Here's what it leaves out. Most of this comes from AM Best's own guide to its ratings.

• It's about the company, not your policy. Individual policies aren't rated.
• It's an opinion, not a promise. It isn't a statement of fact, and it can be changed, suspended or withdrawn at any time.
• It can't tell you whether one company will fail. AM Best says a rating isn't a prediction for any particular company.
• It doesn't say how well the company handles claims. Florida's Department of Financial Services puts it plainly: ratings "are not a measure of the quality of the company's claim handling services." If you ever have trouble with a claim, your state's insurance department takes complaints.
• It doesn't cover your application. It doesn't say whether the company can turn down a claim over misrepresentation or fraud, such as a wrong answer on your application. In Florida, the Department of Financial Services warns about applications with incorrect information: "whether intentional or not, the policy may be rescinded and a claim denied at a later date." Rescinded means canceled as if it had never existed. Wherever you live, a wrong answer can put a claim at risk. So answer every question fully and correctly, check the answers before you sign, and ask how long the insurer has to challenge them under your policy and your state's law.
• It isn't a recommendation. It isn't advice to buy, keep or cancel a policy, and it doesn't say whether a policy suits you.
• It isn't a price. What a policy costs you depends on the policy and how much coverage you buy. It also depends on the insurer's own review of your health and history, which insurers call underwriting. Whether you're approved depends on that review too.

AM Best's own advice is to treat its rating as one factor in a decision, not the whole decision. I'd say the same.

AM Best's scale has 13 ratings, from A++ at the top to D at the bottom, in seven groups. Each group's name is AM Best's opinion of how able the company is to keep paying what it owes:

So an A+ is the second-highest of the 13, and a B++ is the fifth-highest.

From Fair down, AM Best adds a warning: the company's financial strength is vulnerable to a bad turn in its insurance business or in the economy. It calls Weak companies very vulnerable, and Poor ones extremely vulnerable.

You may also see a code where you'd expect a rating. AM Best says these aren't ratings:

• E, F and S. E means a court has put the company under a regulator's control, or a regulator has ordered it to delay or limit what it pays policyholders. F means a court has ordered the company liquidated, closed down, after finding it insolvent. S means AM Best has suspended the rating, for example because something sudden has happened that it can't yet judge.
• NR means AM Best doesn't rate the company now. That isn't a grade. Some companies have never been rated by AM Best, and others were rated before and aren't any more. If AM Best's page for the company shows past ratings, ask the insurer why the rating stopped before you buy, and look for a rating from another agency.

Do the letters mean anything in practice? AM Best studied the U.S. insurers it rated between 1977 and 2023, property and casualty insurers as well as life and health insurers, in a report published in October 2024. It found that, in general, the lower the rating, the more often insurers became financially impaired. AM Best counts a company as impaired when a court puts it under a regulator's control or orders it liquidated, or when a regulator directs it to delay or limit payments. That's a pattern across many companies over many years, not a prediction about any one of them.

AM Best isn't the only agency that rates insurers. Florida's Department of Financial Services lists four major ones: AM Best, Fitch, Moody's and S&P. Each uses its own scale, and the letters don't line up.

• AM Best: the top rating is A++. An A+ is second from the top.
• S&P and Fitch: the top rating is AAA, followed by AA+, AA and AA-. An A+ is fifth from the top.
• Moody's: the top rating is Aaa, and steps are marked with numbers, so its fifth from the top is A1.

So an "A+" in a brochure doesn't mean much until you know whose it is and when it was given. Look for the agency's name, then check the current rating with that agency, because ratings change. Compare companies using ratings from the same agency. As Florida's Department of Financial Services puts it, "no two systems are alike." It also says "it's a good idea to consider ratings from several sources when evaluating an insurer," and its consumer page on buying insurance lists each agency's website.

It's free, but AM Best asks you to create a free account before it shows you ratings.

1. Find the insurance company's exact name on your quote, application or policy. One brand name can cover several companies. If you search the brand, AM Best may show you several entries, such as a holding company and a group, and the company that issued your policy may not be among them. Use the entry whose name matches your policy exactly, and if none does, search again with the full name from your policy. The National Association of Insurance Commissioners (NAIC) gives the same advice on its own company search page: check your policy for the correct name.
2. Go to ambest.com and search for that name.
3. Find the Financial Strength Rating. Once you're logged in, the company's page shows a large badge at the top right labeled Financial Strength Rating. That's the rating the table above describes. The page also sets out the details in boxes, one below the other:
   • Financial Strength. The rating in capital letters and its group from the table above, like B++ (Good). This is the box to read.
   • Long-Term Issuer Credit. A rating in small letters, like bbb+. It's a related AM Best opinion on a different scale, so don't read it against the table above.
   • Financial Size Category. A Roman numeral with a dollar range. It's a size band AM Best assigns, not the company's assets, and it isn't part of the rating.

   In the Financial Strength box, note the Outlook and the Effective Date, the date the current rating took effect. The Initial Rating Date is when AM Best first rated the company, not the date of the current rating. A small u marks a rating that's under review. Lower on the page, the Rating History lists past ratings, so you can see whether the rating has moved.

4. Read the outlook closely. It's AM Best's view of where the rating may go over roughly the next three years. Stable means AM Best sees a low likelihood of a change. Negative means the company's trends are unfavorable and, if they continue, a downgrade is a good possibility. Positive is the reverse. A rating under review may change soon, typically within six months, and AM Best says which way it leans: positive, negative, or developing when it can't yet tell.
5. Check that the company is licensed where you live. Your state's insurance department can confirm it, and the NAIC keeps a list of every state's insurance department.

If the company's rating drops, don't cancel your policy on the news. A drop in the rating letter doesn't change what your policy says. If the rating is replaced by an E or F, keep paying your premium, and call your state's insurance department before you change anything.

Replacing a policy you already have can cost you. A new policy is priced for you as you are now, and a wrong answer on the new application can put a claim at risk, just as it could when your current policy was new. If you still want to replace it, don't cancel the old one until the new one is actually in force, meaning your new coverage has started. Ask the new insurer for that date in writing. Before you change anything, talk to your insurer, your state's insurance department, or a licensed agent.