When shopping for life insurance, it can seem like the decisions are endless. You have to determine what kind of coverage you want to buy, how much you need, and which company to go with, to name a few.
One of the things that will (and should) come up frequently in your research is ratings. Researching the rating of your life insurance company is worth the effort. Similar to how your credit score is used to help determine your lending rate, insurance companies, too, get scored based on their financial strength and claims-paying ability.
Why life insurance company ratings matter
Any of us who have a family to support understand the importance of life insurance – having coverage in place helps us mitigate financial risks and sleepless nights. Needless to say, you wouldn’t want to make an important financial decision such as purchasing life insurance without evaluating the company issuing the policy.
Third-party agencies like A.M. Best and Moody’s do independent assessments of insurance companies to help you make an informed buying decision. Life insurance companies receive ratings from independent agencies based on their analysis of items such as customer complaints, available cash flow, and acceptable risk. A high rating indicates the agency’s assessment that the insurer will be around to pay out the policy to your beneficiaries.
You should choose a life insurance company that’s well respected and has received reputable ratings. If becoming a life insurance policyholder is like being in a long-term relationship, think of Moody’s, or other independent rating agencies, as one of your matchmakers.
A rating shouldn’t be the only piece of information you use to choose an insurance company, but it can offer valuable insight into a company’s financial health.
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The story behind Moody’s
Moody’s started out as a paper publication. John Moody launched Moody’s Manual of Industrial and Miscellaneous Securities in 1900. He provided information on the stocks and bonds for various companies, including manufacturing, government agencies, financial institutions, and food companies. The manual was a hit, selling out in two months.
After a stock market crash, Moody’s relaunched, this time assessing America’s railroads. Over the next five years, Moody’s continued to expand its base of companies to analyze, and Moody’s Investors Service was incorporated in 1914. The company kept widening coverage, and it earned a reputation in the global financial market for its assessments of corporations and even governments’ creditworthiness.
Moody’s has been rating companies’ financial health for more than a century.
How Moody’s reports on financial strength
Moody’s rating system uses both letters and numbers, and ratings range from Aaa to C. Here are a few important things to help you understand Moody’s ratings:
- The more ‘a’s, the better. Aaa rating is Moody’s highest, followed by Aa1, Aa2, etc. Moody’s A, B and C ratings can also be followed by one or two lowercase ‘a’s that indicate position within the ranking.
- Numbers show rank within the rating. Take Aa, the second-highest ratings level. An Aa1 rating means the company ranks in the higher end of the Aa level. Aa2 means the company is in the midrange, and Aa3 means the company falls on the lower end of the Aa level.
Moody’s ratings may look slightly different from other insurance rating agencies. Here’s the full list, so you can get an at-a-glance idea of how close to the top each company you’re considering is:
- Aa1, Aa2, Aa3
- A1, A2, A3
- Baa1, Baa2, Baa3
- Ba1, Ba2, Ba3
- B1, B2, B3
- Caa1, Caa2, Caa3
MassMutual’s Moody’s rating
Haven Life offers coverage issued by MassMutual, a more than 160-year-old life insurer with an Aa2 rating from Moody’s. That means MassMutual has received the third highest of Moody’s 21 ratings. An Aa rating from Moody’s is considered high quality, with minimal risk.
Other ratings to consider
Just as you wouldn’t buy a house without touring a few potential options, you shouldn’t aim to make insurance a one-stop shop experience, either. Get quotes from a few companies, and look at more than one source to assess the company’s rating.
The leading rating agencies
Besides Moody’s, A.M. Best, Fitch, and Standard & Poor’s are a few other agencies known for rating the insurance industry. If a company has strong ratings across all four, that’s a good sign of financial health.
What customers have to say
While the insurance rating agencies can tell you about a company’s ability to meet long-term and short-term debt obligations, they won’t always give you information about other key factors, like customer service and user experience. Reading through customer reviews online, or even crowd-sourcing feedback within your own circles can tell you more about what it’s actually like to be a policyholder.
Using Moody’s ratings to find the right insurer for you
You can never be too selective when buying life insurance to help financially protect your family. Utilize the expertise of rating agencies like Moody’s to put your insurer through the paces and help you determine which life insurance company is best for you.
Once you’ve identified your top choices for an insurer, the next stop on your journey should be to get an estimate for how much a term life insurance policy will cost. And maybe after all of that, you’ll finally be ready to pop the question: Will you be my insurer?
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Financial strength ratings are as of June 12, 2018: A.M. Best Company: A++ (Superior; top category of 15); Fitch Ratings: AA+ (Very Strong; second category of 21); Moody’s Investors Service: Aa2 (Excellent; third category of 21); Standard & Poor’s: (Very Strong, second category of 21). Ratings are for MassMutual (Springfield, MA 01111) and its subsidiaries, C.M. Life Insurance Co. and MML Bay State Life Insurance Co. (Enfield, CT 06082). Ratings are subject to change.
Jessica Sillers is a writer who specializes in financial services, business, and parenting. She lives near Washington, D.C. with her family.