CFP

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.



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