One step Kiplinger's always recommends when buying insurance is to check company ratings. We've certainly covered enough insurance scams and poor industry practices to know how important it is to check on a company before signing the dotted line.
So what do those ratings mean? Kim Lankford explains in this short adaptation from Kiplinger's June issue:
Agencies that rate insurers look specifically at a company's (or a subsidiary's) ability to pay claims. And even though many insurers have been downgraded, they're still in good shape."For the most part, we're seeing some of the higher-rated companies get downgraded to ratings that are still relatively high -- such as A+ to A or maybe A to A-," says Andrew Edelsberg, a vice-president in the life and health division of A.M. Best. The insurance subsidiaries of American International Group are currently rated A with negative implications, which means there could be additional downgrades. The lead companies for Genworth and Hartford also have A ratings. (Go to A.M. Best for more financial-strength ratings.)TheStreet.com, which has the toughest ratings scale, still puts Genworth, Hartford and AIG's life-insurance subsidiaries in the B and C range (click on the site's "Portfolio & Tools" tab to look up insurers' ratings). To Martin Weiss, of Weiss Research, the big red flag comes when a company's rating by TheStreet.com falls to D+ or below. "That's when the scale is generally tipping in the direction of getting out," he says.However, even if your company's ratings are lowered, it still might not be worthwhile to switch. Conseco is rated D+ and Penn Treaty gets an F from TheStreet.com. But it may be too expensive -- unrealistic, even -- to find a replacement policy.
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