Life Insurance Company Ratings

I recently bought some term life insurance. The company’s rating (by S & P, AM Best and so on) seems pretty favorable but there are other companies with higher ratings.

My instinct is that it doesn’t matter all that much; that if the life insurance company is authorized to do business in my state that it’s regulated; that it’s unlikely to fail and that even if it does fail, the regulators will make sure that it pays out the majority of what it is supposed to.

e.g. if I kick the bucket and my family gets 65 cents on the dollar, that’s still plenty of money.

Does anyone with industry knowledge have thoughts on this subject?

Ratings are not everything.

Canadian insurer Confederation Life was rated B++ (Very good. Assigned to companies which, in our opinion, have achieved very good overall performance) by A.M. Best the day before it failed.

Not to pick on A.M. Best, the same company was rated BBB+ (Insurers with “BBB” offer adequate financial security, but their capacity to meet policyholder obligations is considered more vulnerable to adverse economic or underwriting conditions ) by Standard & Poor’s. Duff & Phelps rated Confederation Life AA- (Very high claims paying ability).

IIRC, only Weiss has never had an insurance company fail that they had rated “A”.

In the US insurance is regulated at the state level. States generally have some sort of guarantee fund or provision if an insurer fails. Exactly how it works may vary slightly. Much like the FDIC, there may be limits on how much the state will guarantee (i.e. You have a life insurance policy with a $500,000 face value. The company fails and you die shortly after. The policy may only be guaranteed up to $300,000.)