If you’re researching insurance companies to find the best one for you, there are dozens of factors you need to consider before you choose one.
You need to look at the rates, the products offered, the customer service, and you also need to look at the ratings for the company. If you’ve spent any time on life insurance companies’ websites, then you’ve probably seen the “Standard & Poor’s” rating.
But, what does it mean, and how can you use this rating to aid in your research?
When you’re shopping around for life insurance, you need to find the perfect company. Something everyone should consider is the financial strength of the company.
One of the worst things that could happen is to purchase a policy from a company that is financially weak. In this article, we’ll explain what a rating from Standard & Poor’s means, and how it can help you to eliminate bad companies from your selection.
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History of Standard & Poor’s
Standard & Poor’s Financial Services, LLC. is a subsidiary of the McGraw-Hill Companies, and they are one of the largest financial service companies in the world.
They were established back in 1860 by Henry Varnum Poor. Originally, they published the Henry Varnum Poor of History of Railroads and Canals in the United States. The book outlined the financial status and operations of United States railroad companies.
In 1906, the Standard Statistics Bureau was created by Luther Lee Blake. He wanted to publish a similar book for companies that were not railroads.
In 1941, Paul Babson bought Poor’s Publishing and merged it with Standard Statistics, which created Standard & Poor’s Corp.
After that, in 1966, the company was bought by McGraw-Hill Companies.
Standard and Poor’s has been rating life insurance companies since 1971. They are one of the leading companies in third-party ratings.
What (Exactly) Do They Do?
The company uses a rating system to measure a company’s creditworthiness.
This information is useful for investors or for any customers looking at insurance companies. You can use the Standard & Poor’s rating to help ease any concerns you might have about the stability of a company.
Life insurance is a long-term investment, and if you don’t have a reliable company, you might find yourself with no insurance protection.
When Standard & Poor begins to evaluate a company, they look at their ability to pay any claims and creditors, how the company operates compared to other insurance companies, their earnings, their management, and much more.
These factors are reviewed and then run through their rating system.
The Standard & Poor’s Rating Schedule
The company will issue a letter grade based on all of the factors. They have ratings from AAA to D.
- AAA: The highest rating and companies who receive this rating have a robust financial foundation.
- If a Company Receives a D: Then they have defaulted on some of its debts or has faced serious economic problems.
While there are dozens of different ratings, they are broken into two main categories, investment grade, and non-investment grade. These categories are used for investors looking to put their money into a company.
But what if when you’re shopping around for life insurance, you run into a company that hasn’t been given a rating from Standard and Poor’s?
Should you avoid any company that doesn’t have a rating with them? Not exactly.
Just because Standard & Poor’s is one of the largest doesn’t mean they are a financially unstable company. There are dozens of reasons the company may not have a rating from them.
You can also look at other credit rating agencies, like Fitch, Moody’s, and, the most well-known, A.M. Best.
Ratings and How to Use Them
It’s easy to find the ratings for just about every life insurance company on the market.
But once you’ve found them, what do you do with them? It’s vital you know what to look for when you’re choosing between companies.
If you’re comparing one company with an AA rating and an AAA rating, the difference between them is minimal, and you shouldn’t automatically choose the company that has the better rating.
On the other hand, if you’re deciding between a company that has a B rating versus one that has an AA rating, the grades are going to play more of an impact.
Typically, I would rarely recommend a company with a “B” rating, or lower, of any kind.
While there are a lot of quality companies with B ratings or lower, there is a reason they received those lower ratings. You need to use your own judgment when choosing a company with a less-than-perfect rating.
Team Up With an Independent Agent
Using these rating systems is an excellent way to choose an insurance company. You want a financially stable company, but there are thousands of companies to choose from.
You could spend a lot of time looking at ratings and products. Do you have 100 hours to call companies or research carriers? Probably not.
Instead of having to spend time researching companies and finding their ratings, we, as independent agents, can bring a personalized set of quotes from a large cross-section of carriers. Working with us is like working with 50 providers. That’s 50 quotes with one phone call.
The Bottom Line – Who Is Standard & Poor’s?
Selecting the right insurance company is a pivotal decision, with implications for your financial security. Standard & Poor’s ratings provide a lens through which the financial strength of these companies can be gauged.
Established as a credible third-party evaluator, their ratings offer potential policyholders a tool for navigating the myriad options. While the highest ratings denote robust financial health, it’s essential to understand the nuances of each grade.
Yet, solely relying on these ratings isn’t advisable. Collaborating with independent agents can ensure a comprehensive approach, blending both ratings and individual needs to make an informed insurance choice.
