Insurance company credit ratings are issued by agencies like AM Best, Moody’s, and S&P to show the financial strength and claims-paying ability of the insurer. These ratings matter because when you buy an annuity, you’re relying on the insurance company to keep its promises for years to come. For longer-term products, such as lifetime income annuities, it’s best to choose highly rated companies to maximize security. However, for shorter-term annuities, it can be reasonable to use a slightly lower-rated company if they offer better rates, since the time horizon and risk are much smaller.
When purchasing an annuity, many people focus on the terms of the contract: the payout options, the interest rate, and the fees involved.
While these things are all important, there’s another crucial factor that often doesn’t receive enough attention, the credit rating of the insurance company issuing the annuity.
An annuity is a long-term financial product, and the promises it makes are only as good as the company behind them. Understanding credit ratings can help you make a more informed, safer investment decision.
The promises inside the contract are only as good as the company behind them
AM Best is a credit rating agency that focuses primarily on insurance companies and it is the source that My Annuity Agents uses to evaluate insurance companies. As a general rule, we recommend the following guidelines:
Insurance Company Credit Rating
Length of Surrender Charge or Contract
7 Years or more
A+ or higher
Up to 7 Years
A or higher
Up to 3 Years
B++ or higher
Because you shift your financial portfolio to annuities for safety, we do not sel annuities through insurance companies that have a credit rating lower than B++
If you’re considering an annuity from an insurance company with a low or recently downgraded credit rating, that should raise a red flag. Even if the annuity offers higher returns, those returns may come with higher risk.
The company may be using attractive rates to bring in more cash flow in the short term, which could indicate deeper financial issues in the long run.
One of the advantages of purchasing an annuity through My Annuity Agents is that we receive updates from AM Best that notify us if an insurance company has been recently downgraded or put on a negative financial outlook.
Some annuity agents tell you your annuity is safe because of the state guaranty associations, which provides limited protection if an insurance company becomes insolvent. These protections vary by state but usually cover up to $250,000 in the cash accumulation value of your annuity.
Most guaranty associations do not cover the lifetime income payment so using a strong insurance company for lifetime income is very important.
Relying on the state guaranty association as a safety net is not a substitute for due diligence. These associations do not always guarantee full recovery of your investment, and the process of recovery can be time-consuming and complex. It’s always better to choose a financially sound company upfront.
Many people ask how often an insurance company fails. It is not a common occurrence but it has happened in the past. In November 2024, Colorado Bankers Life was moved into a court ordered liquidation.