Shopping around for life insurance can be worse than trying to buy a new car.
There are dozens of different types of plans and over 800 companies on the market. Finding the best company and plan for you can be difficult. Every insurance company is different, and all of them are going to have different plans and advantages.
It’s vital you find the best for you.
When you are looking around for life insurance, it’s important you look at the financial stability and the security of the company you purchase the plan from.
A life insurance policy is a long-term investment. More than likely, your policy is going to last at least 30 years.
If you were to buy a policy from a less than reputable company or a company that is in poor financial standing, you could find yourself with a policy that is worthless because the provider can’t pay the face value or they go bankrupt.
You can’t predict the future. Companies can always change, but there are a couple of tools you can use to help you make the best decision.
One of those tools is some of the third-party rating companies which can give you an idea of how stable a company might be.
History of Moody’s
The Moody’s Corporation goes back many, many years. In fact, they have over 100 years experience in the financial industry.
In 1900, John Moody & Company released the Moody’s Manual of Industrial and Miscellaneous Securities.
This manual gave information on stocks and bonds of mining industries, manufacturing companies, utilities, food companies, government agencies, and much more.
After only 3 years publishing the manual, it became wildly popular in the United States.
In 1907, the John Moody & Company ran into some serious problems when the stock market crashed. Unfortunately, they were not able to keep the doors open. John Moody decided to sell his manual business.
Luckily, he wasn’t out of the market for long.
In 1909, he got back in the financial industry, but with a few changes. Instead of getting information on the property, capitalization, and management, he decided he wanted to offer information for investors on security values.
He started using a letter rating system to give the investors an idea of how safe an investor a company would be based on his algorithms. To start with, Moody was only looking at the financial stability of railroad companies.
How does Moody’s Work?
The Moody’s rating can have a huge impact on how investors or applicants view an insurance company. It’s important you look at the rating of a company before you buy a plan.
Their rating details the credit risks and chances the company will default on their bills in the future. It works very much the same as Fitch, Standard & Poor’s, and the most popular, A.M. Best.
There are several factors Moody’s ratings will take into account.
The company will go through a specific process when looking at a company. The first thing Moody’s does is gather information about the company. This will include:
- annual reports
- stock price trends
- trading volume
- data from agencies
- and much more
After they have all of the information, they have a committee who will evaluate all of the information and then give them a letter rating based on their rating system. After that, they will continue to monitor the company and determine if any changes should be made to the rating.
The committee which evaluates the company is going to differ depending on the company they are evaluating. At the least, the committee will consist of a managing director and a lead analyst. Moody’s will add more members depending on the industry and the size of the company.
Moody’s Ratings Explained
The ratings from Moody’s won’t mean anything to you unless you understand the chart and system they use. Essentially, their ratings are broken into two categories, short-term and long-term ratings.
For the short-term ratings, the ratings go from P-1 (which is the highest) to P-3 (the lowest).
The long-term ratings have more ratings available:
Aaa – this is the highest rating Moody’s gives to companies. If a company has an Aaa rating, they have shown all the necessary signs of being a financially stable company which has excellent chances of being able to pay out all of their policies and debts.
Aa – companies with an Aa rating have still shown excellent outcome trends and financial stability. This is one of the best ratings a company can receive, and there is very little credit risk.
A – “A” companies have minor credit risk, and you shouldn’t worry about investing or purchasing a life insurance plan from an A rated company.
Baa – while still a good rating, companies with a Baa rating have shown a few areas of concern. You can still purchase a plan through one of these companies with confidence.
Ba – according to the Moody’s Long-Term Rating Definitions section, companies with this rating are “judged to have speculative elements and are subject to substantial credit risk.”
B – this is the rating where you should be cautious of purchasing a policy. These companies have shown several signs of being less stable than desired according to the Moody’s committee.
Caa – These companies have shown a very high credit risk.
Ca – companies this low on the Moody’s rating system, are a high risk of defaulting on some of their loans.
C – this is the lowest possible rate a company can receive from Moody’s. They are showing a lot of financial problems and very little chance of recovery from the financial problems.
Inside of each of the ratings, Moody’s committee can also assign numerical modifiers, 1,2, and 3. 1 being the highest modifier, and 3 being the lowest.
Using Moody’s Rating
When you’re shopping around for life insurance, it’s vital you find a stable company that is going to be around for years to come.
It’s easy to find the Moody’s rating for any company on the market. Take the time to check on the financial rating for each company you compare.
