When you buy insurance, your policy is there to provide peace of mind, whether you’re worried about a car accident or flood damage.
But what if your insurance company runs into financial trouble and can’t pay claims? Then their problems become your problem.
For most of us, the idea of researching an insurance company’s financial health is about as appealing as a root canal. Happily, you don’t have to do this work. Several independent agencies—A.M. Best, Fitch Ratings, KBRA, Moody’s, Standard & Poor’s—exist for this very reason.
These rating agencies unleash teams of number-crunching super-nerds to size up insurance companies on your behalf, generating reliable insurance ratings so that you can get back to your latest Netflix binge. Each agency uses its own methodology, considering a variety of important factors.
Then they issue an insurance rating, usually from A (strong) to C (weak), though struggling companies may get a D. These letter grades represent an educated prediction of the insurer’s ability to meet future financial obligations—like sending you a check when that fender bender happens.
Ratings are a powerful tool when you’re shopping for insurance and deciding between quotes. Here are some tips for using them:
Choose an insurance company rated A or better, so you know that your insurer has your back. Keep in mind that insurance rating agencies use slightly different scales; some use gradations, like A++ for superior service.
Compare insurance ratings from at least two agencies. As a kid, you might have bragged to your parents about your A in science while “forgetting” to mention your C in math. Insurance companies sometimes “forget” too, choosing to advertise a high insurance rating from just one agency. That’s why it’s important to compare insurance company ratings from multiple agencies to make sure you’re choosing one of the top-rated insurance companies .
Give insurance ratings their proper weight. You’ll always want to choose an A-rated insurance company over a B-rated one. But if both companies are among the best—say, one has an A++ rating and the other has an A—consider other factors, like overall customer satisfaction and whether the company’s policies are a good value for the price.
AAA received an A rating from A.M. Best.