The age old question, “what if the company goes bankrupt….then what?” is one of the most asked questions I get from clients when I help them find the best policy for their situation. I completely understand worrying about losing all of your money to a company that closes its doors if something were to happen. I always assure my clients and let me assure you now, trusting an agent that works with A rated and higher insurance carriers will ensure your policy is never lost to these circumstances. In this article I am going to describe the rating system, how companies are rated and what it means, as well as the importance of selecting an A rated carrier.
AM Best: Who Are They and What do They Do?
There are over 5,000 insurance companies in the US, is that even conceivable? Of those there are less than 50 A rated or better insurance carriers in the United States today. AM Best was founded in 1899 as a privately held company designed to rate insurance companies and the insurance sector on three factors, their financial strength, financial stability and their claims paying ability. In essence they determine the creditworthiness of an insurance company and rank them appropriately. AM Best uses both qualitative and quantitative measures to assess an insurance company’s ability to pay claims and meet its financial obligations. AM Best’s financial strength ratings range from A++ to B+, which are all the 6 top secure ratings, to the bottom 10 vulnerable ratings, ranging from B to S, with the lowest indicating a rating was suspended. The most important take away from this is, AM Best is a completely privately held company, that is in no way affiliated with any insurance carrier. They are the only company in existence that specializes solely on the insurance industry.
Financial Strength and Financial Stability: Money in the Bank!
The first two ratings AM Best rates all insurance carriers on is their financial strength and financial stability. Both of these ratings go hand in hand. Combined they essentially mean that the insurance carrier is financially solvent and has money in the bank. In order to attain an A rating or higher the company has to have enough money in reserves to match every single policy that’s in force. That way, in the very unlikely scenario, if every single policy were to cash in, that carrier could pay all of them and not go bankrupt. If this were to happen, I would assume we have more to worry about globally than a life insurance carriers financial rating. Simply put, the insurance carrier is financially strong and not going anywhere.
Claims Paying Ability: Where’s My Money!
The third and final factor AM Best rates all insurance carriers on is their claims paying ability. This can be summed up to, how fast the insurance carrier pays out the death claim to your beneficiary the day you pass away, without dragging their feet or having to wade through red tape. A-rated companies typically pay out pretty quickly, but not always. Remember the rating is an aggregate of all three factors, not individually. There are A-rated carriers in existence that are notoriously known for taking their time when paying out death claims, for instance Mutual of Omaha. Why is this important? The money will be paid out to your beneficiary when you die. Having peace of mind that your money will get paid out quickly, so your family is not added stress to their grieving process is important. Making sure the company will not go out of business anytime soon is definitely a key factor when deciding on the best company and coverage, however, making sure they pay out quickly should be an equal consideration within your decision-making process.
Seek Out an Advisor to Help
Navigating the insurance industry is difficult to say the least. Find a professional that cares about giving you up front and honest answers. They should show you they care about helping you find what you need by discussing what is most important to you. They will help you to select an A-rated carrier that you will never have to worry about going bankrupt. If you would like to speak to an advisor from the Family First Life Connect team, go to the term life insurance quote tool here, or the final expense quote tool here and pick any of the quotes. Go through the prompts and an advisor will reach out to you shortly. Until next time!