Understanding life insurance ratings

If the real estate mantra “location, location, location” had a life insurance equivalent, it would probably be “decisions, decisions, decisions.”

That’s because shopping for life insurance requires quite a few decisions: How much coverage do you need? Should you go with whole, universal or term? If term life insurance, what term length should you choose, and which company do you buy a policy from?

But what about the things you can’t control?

Like whether the company that issues your policy will be able to pay the claim when your family needs it most, even if that’s 30 years from now? After all, if the insurance company can’t pay, it won’t matter how much thought you put into your decisions.

Fortunately, there’s a helpful solution: life insurance company ratings. Ratings help indicate the financial health of the insurance company you’re considering, which is incredibly valuable when you realize there are hundreds of life insurance companies out there.

So, here’s how to use ratings to your advantage when shopping for life insurance:

What the ratings mean and how to use them

Life insurance companies receive ratings from independent agencies based on its assessment of the insurer’s financial strength and claims-paying ability.

The higher the rating, the higher the rating agency’s assessment that the insurer will be around to take care of your family, as promised. It serves as an independent, objective opinion based on their analysis on items such as customer complaints, available cash flow, and acceptable risk. The agency’s rating scales work like grades in school: An ‘A’ is better than a ‘C,’ for example.

The top four rating agencies

There are several rating agencies out there – not to mention independent customer review sites, – but four of them are most frequently touted to represent the quality of life insurance companies.

Each of the four – A.M. Best, Fitch, Moody’s and Standard & Poor’s – has its own standards and grading scale for rating insurance companies.

A.M. Best rates companies on a scale of A++ down to F
Fitch rates companies from AAA to D
Moody’s uses a scale of Aaa to C
Standard & Poor’s rates companies from AAA to D

It’s important to get familiar with the rating agency whose grades you’re considering. Otherwise, the score could give you a false sense of security. For example, A+ is A.M. Best’s second-highest rating, but an A+ is Fitch’s fifth-highest rating.

Since each rating agency does its work independently of the other three, each one will have different findings. Your best bet is to check a couple of rating agencies before buying coverage, just like you’d check more than one reference before choosing a childcare provider. If the ratings are strong across agencies, you’ve probably picked a good company.

For example, MassMutual, which issues our Haven Term policy, has an A++ rating from A.M. Best* (Superior; Top category of 15) and also has a Fitch rating of AA+ (Very Strong, Second Category of 21). The highest and second highest ratings available, respectively.

As the Fitch press release states, “MassMutual’s large and stable block of traditional cash value life insurance provides favorable credit characteristics including long-duration participating liabilities, relatively predictable cash flows, limited disintermediation risk, and limited guarantee provisions.”

To see where other companies rate with individual agencies, you can go to each rating agency’s website. Armed with this knowledge, you’ll be able to avoid life insurance companies that are considered to be on a shaky financial footing.

Don’t forget the value of customer reviews

Life insurance ratings help you understand the financial strength of the company who you are buying a policy from, but it’s not the only opinion that matters.

You should also look for customer testimonials. As you already know, reviews can help you learn from other people’s experiences so you can choose a company or agency that offers the simplest process, affordable prices and real, caring people to help along the way. If a company has frequent, unresolved complaints, that may be an indication that it isn’t prepared to meet your needs.

You don’t have to look far to find customer reviews. A quick search of “insert company name reviews” is a great place to start. It can quickly turn up everything you need to know from the standpoint of consumers, media, and experts. You can also often find reviews on Trustpilot, Consumer Affairs, Good Financial Cents and company Facebook pages, which all specialize in sharing customer experiences.

Decisions, decisions, decisions, meet peace of mind

Thanks to modern technology and the Internet of Things, we no longer need to rely on one person’s word to choose the right life insurance policy.

Now, all this research is at our fingertips, which enables full transparency in the buying process. Because of widely available ratings and reviews online, life insurance seekers can confidently purchase high quality and affordable coverage to help financially protect their loved ones. And, now you can check “buy life insurance” off your to-do list whenever and from where ever you’d like.

*Ratings are as of July, 15 2018, and are subject to change. MassMutual has also received other ratings from different rating agencies.