When it comes to insurance, there is one overwhelming factor that seriously matters but rarely looked at by consumers: financial strength. For many, this is the first mention of the term “financial strength” that they have ever heard. For others, they have heard of it, but never quite understood what it was or how to use it. With help from PFA, Premier Financial Alliance reviews all you need to know about the financial strength of an insurance company.
What is the financial strength rating?
Stop for a second and think about insurance as a whole. We are essentially paying money into a “just in case” fund, in the hopes that we are prepared when that time comes. However, how can we place all of our faith into a system when we know little to nothing about its credibility? That’s when the financial strength rating comes into play. The financial strength rating (hereon referred to as the FSR), is the estimated likelihood that an insurance company will be able to meet its promised financial obligations to its customers, such as claims, payouts, etc. It gives you a tangible method to measure the security of the agency in whose hands you have placed your safety net.
How is the financial strength rating calculated?
In charge of this process are four independent agencies: A.M. Best, Fitch, Moody’s, and Standard & Poor’s. With their own set of standards and rating scales, it is the responsibility of these 4 agencies to rate the FSR of different insurance companies based on their confidence and strength of successfully benefiting clients.
How do I read the ratings?
Each agency uses a different scale to measure the FSR of these companies. What means one thing at one agency may not mean the same thing at another. Some use a + and – system (A+, A++, etc.) whereas another firm may use all letters (AAA, Aaa, etc.). Knowing where a company stands gives you an idea into how reliable the insurance company is in paying out for life insurance, accident claims, etc.
Keep in mind; never just go by one FSR. As the scales differ, you should check for at least two different FSRs for an insurer.
When you are comparing insurance companies and looking at their ratings, be sure to keep their financial strength in mind. Each agency has one and more than likely will have it prominently displayed on their site.