Insurance Selection and Annuities - Company Selection

Industry Ratings
One of the key steps in purchasing any insurance policy is to evaluate the financial strength of the insurance company. The risk is that the company may default. In other words, not be able to pay benefits because they do not have the capital necessary to do so. The following chart illustrates the different companies that rate life insurance companies and the ratings they give.

A.M. Best Standard & Poors Moody\'s D&B Weiss
A++ AAA Aaa AAA A+
A+ AA+ Aa1 AA+ A
A AA Aa2 AA A-
A- AA- Aa3 AA- B+
B++ A+ A1 A+ B
B+ A A2 A B-
B A- A3 A- C+
B- BBB+ Baa1 BBB+ C
C++ BBB Baa2 BBB C-
C+ BBB- Baa3 BBB- D+
C BB+ Ba1 BB+ D
C- BB Ba2 BB D-
D BB- Ba3 BB- E+
E B+ B1 B+ E
F B B2 B E-
B- B3 B- F
CCC Caa CCC+
R Ca CCC
C CCC-
DD


Again, the rating system measures the financial strength of the company, the higher the rating the better.

Underwriting
This is a process used by insurance companies to evaluate applicants. The insurance company wants to be able to determine an applicant's exposure to risk. The goal is to make sure that the applicant's risk exposure is equal to the risk exposure the company has set its premium rates to. In other words, the companies use this process to minimize there own risk taken by issuing a policy. Insurance companies use several sources for underwriting an application. They can include...
  • The agent
  • The application
  • Bureaus and associations
  • Physical exam
  • Previous medical records
  • Smoker versus non-smoker

Insurance companies will base whether or not the application is accepted or rejected, the type of policy available to the applicant, and the premiums it charges on this process. Annuities


Related Articles
  1. Mutual Funds & ETFs

    Top Schwab Funds for Retirement (SWDRX, SWERX)

    These Schwab funds are strategically designed and have performed well on a historical basis, meaning they're solid options for retirement.
  2. Investing

    What's a Transfer Price?

    A transfer price is what one unit of a business charges another unit of the same business for a good or service. The transfer price is usually close to the prevailing market rate when different ...
  3. Insurance

    All About Impaired Risk Annuites and Insurance

    What are impaired risk insurance products and understanding life insurance rate classes, table ratings and flat extra premiums.
  4. Stock Analysis

    Google Stock: A Tale of Two Share Classes (GOOG, GOOGL)

    Google stock comes in two different flavors with different rights for shareholders.
  5. Entrepreneurship

    Series A, B, C Funding: What It All Means and How It Works

    Series A, B and C funding rounds have nothing to do with the alphabet, rather with the development stage of startups raising venture capital.
  6. Entrepreneurship

    The Better Business Bureau's Tool Belt For Saving Cash

    The BBB is one resource to help you connect with the best product/service providers in your area.
  7. Mutual Funds & ETFs

    Top John Hancock Target Date Funds for Retirement (JRVOX, JRFOX)

    A look at the performance of two John Hancock life-cycle funds with different retirement dates.
  8. Investing Basics

    The Industry Handbook: The Insurance Industry

    As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of ...
  9. Investing

    The Power of Major Credit Rating Agencies

    The performance of major independent credit rating agencies is a controversial topic, particularly due to the strength of their influence.
  10. Personal Finance

    The Debt Ratings Debate

    Lack of competition and potential conflicts of interest have called the value of these ratings into question.
RELATED TERMS
  1. Insurance Company Credit Rating ...

    The opinion of an independent agency regarding the financial ...
  2. B

    A Nasdaq stock symbol specifying that the stock is Class B shares ...
  3. Medicare Hold Harmless Provision

    A legal statement prohibiting an increase to Medicare B premiums ...
  4. B-Note

    The secondary tranche in a commercial mortgage-backed security. ...
  5. Bond Rating

    A grade given to bonds that indicates their credit quality. Private ...
  6. Regulation BB

    A regulation that requires banks to provide certain information ...
RELATED FAQS
  1. Why should I consider looking for the A.M. Best rating before investing in an insurance ...

    Find out about the rating system that A.M. Best uses to provide financial strength ratings for companies in the insurance ... Read Answer >>
  2. A “normal market” is also called a (an): A) Inverted market b) Carrying charge market ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  3. A Straddle

    A. Speculates on the rate of change of a security's market price. B. Speculates on the rate of change of an option's market ... Read Answer >>
  4. What are the highest-yielding investment grade bonds?

    Learn how Standard & Poor's and Moody's rate bonds. Understand what investment grade bonds offer the best yield. Read Answer >>
  5. What are some of the limitations and drawbacks of using the cash conversion cycle ...

    Understand some of the limitations analysts must take into account when using the cash conversion cycle, or CCC, to evaluate ... Read Answer >>
  6. The real rate of return is the amount of interest earned over and above the:

    a. discount rate. b. tax rate. c. inflation rate. d. risk-free rate of return. Answer: C Since the real rate of return measures ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center