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Selecting An Insurance Company – The Key Factor To Consider

Most people will agree that having the proper types and amounts of insurance coverage are an important part of any sound financial plan. But not only are there various types of insurance to consider, but there are also many different companies to choose from for each type of insurance.

With all of these different choices, arriving at a decision can be a bit daunting. However, no matter what type of insurance you need, the very first thing you should consider is the insurance company’s rating from the various insurer rating agencies. These agencies specialize in determining the financial valuation of insurers. Currently, there are five rating agencies that assess the financial condition of insurers.

Five Rating Agencies

A.M. Best provides in independent opinion of an insurer’s financial strength and ability to meet its ongoing policy and contract obligations. Their ratings range from A++ (superior) to F (in liquidation).

Fitch Ratings provide an opinion of a company’s ability to meet commitments such as interest payments and insurance claims. Their ratings range from AAA (lowest credit risk) to C (imminent or current payment interruptions).

Moody’s Investors Service offers company ratings that range from Aaa (exceptional financial security) to C (poor financial security).

Standard & Poor’s not only maintains the S&P 500, but also rates the credit risk of companies. These ratings range from AAA (extremely strong) to D (payment in default).

Weiss Ratings were bought out by TheStreet.com in 2006. They offer safety ratings to help investors minimize the chance of loss due to insurer bankruptcy. Their ratings range from A (excellent) to F (failed).

Things To Keep In Mind

If you want to look up a specific company’s rating, you’ll need to register at the agency’s website, which (with the exception of TheStreet.com) is free to do.

Also, remember that although research of financial strength is done by the agencies, these ratings are still the opinions of the agencies, and not guarantees of an insurance company’s ability to meet its obligations.

And when you do research on a company, it’s important to check the ratings from multiple agencies, because as noted above, each agency has a different set of grades. A certain grade from one agency may have a different ranking and meaning when compared to another agency. For instance, with Weiss, a “B” grade is good and is amongst the highest ratings for that particular agency. But when looking at A.M. Best, a “B” grade represents fair yet vulnerable rating. Furthermore, with Moody’s, a “B” grade is one of their lower ratings that represents poor financial security.

So when purchasing any insurance, whether it be car insurance or home insurance, you should ideally select a company that has received a top-tier rating from the majority of the agencies. And just to be safe, you should avoid any company that has received a low rating from any of the agencies.

Final Thoughts

In light of the financial crises experienced by some insurers recently, the evaluation of insurance companies has become even more important.

So whether you need car, life, homeowner’s, a disability insurance quote, long-term care, or any other type of insurance, you want to make sure that the company you decide to choose is financially strong enough to pay a claim in the event you have a financial setback. Otherwise, you face the risk of not having your claims paid, which defeats the purpose of purchasing insurance in the first place!

Which companies did you select for your various types of insurance? Do you know the insurer ratings for each company from each of the rating agencies?

This post was included in the Road to Financial Independence blog carnival over at One Family’s Blog.

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2 Responses to Selecting An Insurance Company – The Key Factor To Consider

  1. Lily Hembre says:

    A lot strong points that you have made in this article, although I don’t understand them all these are logical.

  2. Kyle Winters says:

    I do like that you encourage checking multiple ratings. After all, it isn’t likely that you’re going to find the insurance company that is right for you on the first try. Instead, you want to compare the different rates each company gives and choose the one that offers the best balance on price and coverage.

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