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Did you know life insurance companies get grades like kids in elementary school? Instead of teachers, though, a credit bureau known as AM Best scores insurers around the globe. They don’t look at how well the underwriters are at reading, writing and arithmetic; instead, AM Best grades these companies on their creditworthiness. A company’s financial strength showcases its ability to meet its financial obligations to its policyholders.

AM Best is a credit bureau that scores the creditworthiness of insurers. Just like you probably have a credit score from three credit bureaus (Equifax, Experian and TransUnion), AM Best rates insurance companies, although the scale it uses is much different than your three-digit personal credit score.

Founded in 1899 by Alfred M. Best, the company became widely respected for its ability to report on insurance-related news after the 1906 San Francisco earthquake bankrupted over a dozen insurance companies. In the century since AM Best has opened outposts across the globe.

While many credit bureaus review businesses and other large-scale organizations — not to mention whole nations like the United States — AM Best is the only one that focuses specifically on the insurance industry, including life insurance.

How does AM Best evaluate life insurance companies?

In calculating the Best’s Credit Rating (BCR) for a life insurance company, AM Best looks at a company’s balance sheet, operational performance and business profile. AM Best compares insurers to each other and over time. Overall, AM Best ranks insurers on stability and ability to cover their financial obligations.

AM Best rates life insurance companies on a letter grade system, including pluses and minuses. There are six secure ratings: the highest being A++ (Superior) and the lowest being B+ (Good). There are 10 lower ratings when an insurer is considered vulnerable, meaning their creditworthiness indicates they may be unable to meet their financial obligations. These ratings range from B to S, the latter meaning a suspended rating.

A company’s grade can change if its financial stability improves or degrades. AM Best generally checks the creditworthiness of insurers on an annual basis or if an event occurs that could impact a company’s risk profile.

Here’s how AM Best scores some of the top life insurance companies as of May 2023:

AM Best U.S. Life Insurance grades as of May 2023

Life insurance company	AM Best grade
Globe Life	A+ (Excellent)
Mutual of Omaha	A+ (Excellent)
Nationwide	A+ (Excellent)
Northwestern Mutual	A++ (Superior)
Prudential	A+ (Excellent)
State Farm	A++ (Superior)

Why AM Best ratings are important

Why would you, a consumer, care about how well a multinational life insurance corporation can meet its financial obligations? Because insurers are in the business of paying out money when the unexpected happens — you want to make sure your insurance company will still be standing if the market takes a plunge or a natural disaster hits your block.

While almost every large American life insurance company currently carries an A+ or A++ grade from AM Best, some smaller insurers, especially smaller regional companies, can score lower. If you are considering less well-known insurers, you should factor in AM Best ratings into your shopping process.

What else to consider when shopping for life insurance

While an AM Best score tells you a lot about an insurer’s creditworthiness, it doesn’t tell you everything about them — such as the cost of premiums or customer satisfaction. To get a sense of which insurer will be the most affordable, compare quotes from at least three to five life insurance companies.

Customer satisfaction should also be a factor. Look up reviews from J.D. Power to evaluate how an insurer scores with its policyholders. A few minutes of internet sleuthing is well worth the peace of mind.

It helps to know your insurer’s AM Best grade

The creditworthiness of a life insurance company shouldn’t only be of interest to federal regulators and investors — if an insurer has a low AM Best grade, it impacts its customers more than anyone.

Life insurance policies are meant to last for the long-haul — oftentimes times paying out decades after they are purchased. A solid AM Best rating shows that your insurer is in good enough financial health to be around years down the line — ensuring that your family receives the death benefit you’ve been paying for.

If an insurer’s rating is B (Fair) or lower, it should raise significant concerns about the company’s financial stability.

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Barry Eitel

Contributing Researcher

Barry Eitel is a content writer and journalist focused on insurance, small business and finance. He has researched and written about personal finance since 2012, with a special focus on entrepreneurship, freelancing and other small business operations. His writing on insurance and small business has been featured in 7x7, Brit + Co, Intuit Quickbooks, Bankrate, Policygenius and Lendio.