While you’d be hard-pressed to find an insurance-based college planning product that makes financial sense for most parents, many people still choose to use these products. Thus, it is crucial to understand the significance of insurance company ratings and how your company stacks up when it comes to their relative safety and stability.
Insurance companies are not backed by the U.S. government, nor is there the equivalent of SIPC or FDIC for insurance companies. Essentially, any life insurance policy or annuity bought to fund your child’s education is only as good as the insurance company that sold it. If that insurance company goes bankrupt, you may experience a total loss.
The most helpful thing in determining if an insurance company is safe enough for your tastes is the insurance company ratings put out by organizations such as Moody’s, A.M. Best, or Standard and Poor’s. These ratings usually incorporate some type of letter grade, which can go as high as “AAA.” Some companies also include pluses and minuses in their rating systems.
Generally, anything rated below a single “A” or “A-minus,” depending on the rating organization, would be considered higher risk. Personally, I would never choose an insurance company with a rating below this level.
You can find ratings for any life insurance company on the websites of the following insurance company rating organizations:
AM Best Insurance Company Ratings
