Finding the best life insurance company for your family’s needs is one of the most crucial decisions you will make, one which requires you to look at cost, coverage, and the company’s reputation.
If you’re researching companies so you can make a decision for yourself on who deserves your business, you may have already found there are quite a few rating agencies who all have their own way of scoring insurers.
While looking to these rating agencies for insight is simpler than compiling all the data yourself, you’re going to be left with four separate reviews, on four separate scales.
But there’s a better way to do this: enter, COMDEX ratings.
About COMDEX Ratings for Life Insurance Companies
The idea here is to take a sort of ‘average’ number, then find out where the carrier ranks among the others based on that ‘average.’
Short for composite index, the Comdex compiles the scores from the four major credit raters, presenting you with a composite score of all the evaluations a life insurance company has available.
It then puts each company into one single, 100-point scale.
This method, in essence, creates a percentile in which to place each company.
The higher the percentile, the higher the company’s overall rankings from the other private rating companies.
Many insurance seekers find it far simpler to look at a score on a scale of 1-100 than to try to understand four different rating scales and their methodology.
The 100 point scale puts the credit rating scores in context as it allows you to see how a company compares to its competitors based on what percentile it falls into.
Why Credit Ratings Matter
When you’re choosing a life insurance provider, ratings matter.
Just as you check reviews before buying a big ticket item, you should put thoughtful research into purchasing life insurance.
But with this purchase, you need to go beyond product reviews depicting dollar signs, premiums, and policies.
Ratings from companies like A.M. Best, Moody’s, and Fitch Ratings Inc. aren’t just for investors looking to diversify their portfolios.
The ratings these institutions provide indicate a company’s likelihood to fulfill its financial obligations, a critical factor to consider when you are shopping for life insurance.
To do so, they look at a company’s cash flow, operation costs, and other documents to determine how likely a company is to default, turning that data into an easy-to-understand score.
Eye-catching numbers and engaging advertising are meaningless if a provider doesn’t have a history of meeting its promises or demonstrating financial stability.
Credit ratings allow you to peer past all the self-described benefits of insurance providers to see how dependable the company actually is.
You can use these credit rating scores to decide whether or not a life insurance provider is worth your time and money.
How the COMDEX Rates Companies
Each of the big four independent raters uses their own scales with similar yet inconsistent ratings and explanations.
For instance, an “A” rating from one rating company is not necessarily the same as an “A” from another.
With those inconsistencies, it becomes a little more difficult for the common consumer to determine which rating agency is really the most accurate, or which insurance carrier is the most reputable.
While all four of the raters mentioned above are trustworthy and well-established in the investment world, they each weigh some factors differently than each other.
They also have completely different scales, meaning a top-tier rating of a company might be labeled differently between one company and the next.
The Comdex takes this into account by creating percentiles, because while the letter is important, it’s also important how many other carriers were able to get the same, or better, rankings.
If a company got an “A” rating but so did another 100 companies, how valuable is that information?
However, if it was one of only 10 companies, now how much more reputable does the company appear to be?
The Comdex can provide the context and level of detail needed to make an informed decision.
What Is Factored into the COMDEX Number
In order to get a number, the Comdex first takes a complete count of all companies who have at least two of the four rankings necessary to earn a Comdex score.
This helps to keep it a little more consistent because not all carriers seek out more than one rating, and also gives the Comdex something to average out as just one rating being taken into consideration would give excess weight to one rating agency’s platform.
Next, each individual rating agency’s full list of carriers is counted and divided by how many carriers were in each category.
For example, if A.M. Best rated 100 carriers and only five were able to obtain the top rate, those five would be in the 100th percentile.
If another 20 got the second highest score, they’d be in the next percentile, and so on.
Where to Find a Company’s Rating
A company’s Comdex score is a mathematical composite of the major credit rating companies’ score rather than a subjective score based on one institution’s criterion.
It is meant to tell consumers and investors how many companies rank above and below the company in question to provide a truly accurate point of comparison.
In order to qualify for a Comdex score, a company must be rated by at least two of the four major credit raters mentioned above.
Benefits of the COMDEX
After all four agencies have their lists compiled, sorted, and calculated for carriers’ scores, the scores are then tallied up and averaged for the carriers.
To provide you with a specific scenario, let’s say XYZ insurance company was in the 90th percentile for A.M. Best, the 85th percentile for Fitch and the 80th percentile for Moody’s, the average of the three would be a Comdex score of 85 (90+85+80=255, 255/3=85).
While, once again, this can’t be the only number you can rely on, it does help to find what percentile a company is in with a somewhat fair amount of data.
Rather than trying to compile all the life insurance providers on your radar, comparing their scores across rating companies, then seeing how they stand up against their competitors, you can simply check the percentile in which each company falls.
Where the Ratings Fall Short
As helpful and comprehensive as the Comdex is at determining a company’s value in comparison to its competitors, there is one potential hindrance to its accuracy.
It isn’t perfect because not all companies are rated by the same number of rating agencies, so the Comdex score you see may be omitting up to 50% of the possible input it could have available.
With a fair amount of consistency between the major credit raters’s criterion, though, a company’s Comdex score is still considerably reliable, even if it is based on two ratings as opposed to four.
When choosing the best life insurance company for you and your family, consider the Comdex score, all the individual ratings of the company, the company’s history, and even current client reviews, if available.
The Comdex is updated frequently, especially for larger and more popular insurance companies, meaning the scores you see are based on up-to-date information.
Be sure to check back every so often to make certain the company you’re paying your premiums to is living up to its promises, too.