How Do You Know Your Insurer Can Afford to Pay Your Claims?

A hand holds out fanned-out hundred-dollar bills to another hand.

(Image credit: Getty Images)

By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS

published 21 February 2025

Do you ever wonder whether your insurance company will be there to pay if you have to file a claim? Moreover, do you wonder whether it will have the means to pay your claim? Let me give you a few ways to do a little due diligence on your insurer so you are never caught off guard.

First and foremost, you want to be sure that the insurance company you pick has more money than you do. A lot more. And don’t laugh — it may surprise you to know how little cash some insurers have in their bank accounts. Some insurance companies, referred to as regional carriers, sometimes have only around $100 million on hand to pay claims. OK, fine, so that’s a lot more than you have, but you get the point, right? Some quick-and-dirty math can show how one catastrophic event can quickly wipe out all that insurer has.

And you can’t just assume you’re safe with a company that can afford to advertise during the Super Bowl or has a lizard or duck or emu as a mascot who tries to scare you with talk about how dangerous the world is. The only thing you can know about a company that does a lot of advertising is that they do a lot of advertising. It should not in any way make you think they must be financially sound. The argument could be made that if they are spending so much money on advertising, is there enough left over to pay claims?

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What's an insurance customer to do?

The easiest way to get a quick snapshot of an insurance company’s ability to pay claims is to check with an organization that monitors precisely that. I suggest you check with AM Best, which has been in the business since 1899. Yes, 1899. It started out back then in a tiny 10-by-12 office in New York. In 1905, it developed the first insurance company credit ratings. So yes, I think AM Best is a good place to check out your insurer.

Karl Susman

Karl is an insurance agency owner, insurance expert witness in state, federal and criminal courts, and radio talk show host. For more than 30 years, Karl has helped consumers understand the complex world of insurance. He provides actionable advice and distills complex insurance concepts into understandable options. He appears regularly in the media, offering commentary and analysis of insurance industry news, and advises lawmakers on legislation, programs and policies.

You will need to register a free account, but after that, it is all academic. You type in the name of your insurance company, and you will see a financial snapshot.

A few things to keep in mind:

Your insurance company may be owned by another insurance company.
Insurers get letter grades, just like you did back in high school, with a little more detail that can give you an idea of the financial strength of the insurer. A “superior” insurer gets an A++, and it goes down from there. It’s worth noting that there are three levels of grades from A++ to B++, so even if your insurer lands in the B range, which normally would seem like a pretty good place to be, you should pay special attention.
Also listed is a range of money that the insurance company is said to have. That does not mean that those are the dollars available for paying claims. That’s the size of the company, and AM Best provides a section that explains the details of that.

Other issues at play

Now that you have an idea of how much moola the insurance company has, is that really all that matters? Spoiler alert: No, there are other issues at play as well. Check with your state’s Department of Insurance to get an idea of the history of the insurance company. Depending on the state you are in, some departments will provide information right on their website.

Additionally, you can check with the NAIC (National Association of Insurance Commissioners), which also collects data on consumer complaints and company performance. That sounds like some good info to have, no?

If those places don’t leave you feeling comfortable that you know what your insurer can handle when it comes to paying claims, then you can check some of the — how to put this — less-regulated sites for information, such as Reddit, Nextdoor, Yelp or even the good old Better Business Bureau. There are plenty of people out there who love a good forum to complain about their insurance company.

What to do with the info

Now that you know of the resources, how should this impact your insurance-buying decisions? This is a personal choice that only you know. If you are comfortable with a smaller insurance company that has quite a few complaints and the trade-off is that your premium is lower than average, have at it. If you want the big brand-name companies that you see on TV ads and somehow feel a part of (your premiums helped pay for those commercials), then go that route. Finally, if you are looking for a combination of security and competitive pricing, then take everything into consideration when shopping around.

There is no one-size-fits-all when it comes to an insurance company. Any insurer that claims to have the best product for every situation is straight-out conning you. Some companies specialize in higher risks, some lower, while some won’t even offer coverage in some states.

Shop, talk, learn, purchase, in that order.

Want to learn more about insurance? Visit KarlSusman.com.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Karl Susman is an insurance agency owner, insurance expert witness in state, federal and criminal courts, and radio talk show host. For more than 30 years, Karl has helped consumers understand the complex world of insurance. He provides actionable advice and distills complex insurance concepts into understandable options. He appears regularly in the media, offering commentary and analysis of insurance industry news, and advises lawmakers on legislation, programs and policies.