Soft magnetic composites (SMCs) are designed for the sustainable industrial production of uniform isotropic components with three-dimensional magnetic properties. The nanocoating covering the surface of water-atomized iron powder is the paramount feature of SMC technology that gives the material the high resistivity needed for minimizing the negative effects of eddy currents. An analysis of its initial state/composition on a micro level and any changes during further compaction and heat treatment is thus of great importance. Therefore, a method for the evaluation of composition and thickness of such insulating coatings was developed in this study. High resolution imaging combined with surface analytical and depth profiling techniques (high resolution scanning electron microscopy (HR SEM) with energy dispersive X-ray spectroscopy and X-ray photoelectron spectroscopy) were used. Analyses were performed on commercially available SMC powder grades having a phosphate-based coating. Depth profiling was carried out by ion etching and X-ray photoelectron spectroscopy analysis. The analyses revealed the presence of oxygen (O1s), iron (Fe2p), and phosphorous (P2p), indicating these elements as the main components of the insulating coating. Two approaches for the evaluation of the coating thickness were tested based on the relationship between the normalized intensity of the iron metal peak and etch depth where the phosphorus and oxygen intensities reach half the difference of their maximum and minimum values. Results indicate that the thickness of the coating extends to the~30 nm depth into the surface. For HR SEM imaging, utilization of an InLens detector for secondary electron imaging and a low acceleration voltage (~5 kV) is recommended for HR SEM + energy dispersive X-ray spectroscopy analysis of coating morphology and composition.