What are life insurance classifications and ratings?
Quick Page Guide:
- Classifications of life insurance
- What are the life insurance rating classes?
- Risk classifications used by underwriters for life insurance?
- What determines a life insurance health classifications?
- Breaking down the cost of life insurance classification
- Life insurance ratings
- Classification of life insurance policies
- Life insurance classifications FAQs
What are life insurance classifications
It is essential to realize that all policies are not the same, so you should not compare your premium to your neighbour’s policy premium. It is because each insurer has a system of classification. The system is used to find out details about your health and other factors that might affect the amount of your premium.
Moreover, classifications of life insurance policies do not only determine your premium but the amount of coverage for each price. Suppose you are a healthy individual. You have the opportunity to get a favourable classification and affordable life insurance rates.
However, if you have pre-existing health conditions, then it will affect the classification and the rates. Life insurance companies distribute policies according to risks, so they want to know the chances of you getting a payout during the policy. Health class is the safeguard of insurers to know who has the most significant risks.
Almost all insurers use the same four classifications to know how much premium to pay, but each may differ slightly. For instance, a tobacco user usually receives unfavourable classification for any tobacco. Some insurers may define each tobacco product to determine the classification.
- The classification used by life insurance providers determine your risks as a policyholder
- There are different factors, such as hobbies, family, and health history, that might affect your insurance classification
- Your classification will determine the cost of your monthly premium
What are the life insurance rating classes?
Mostly, insurers use these four general risk classification used by underwriters for life insurance to find out the cost of your policies, such as:
- Preferred plus
- Standard plus
Some insurers like northwestern mutual life insurance health classifications may use different names for each classification, but these terms are the most widely used. However, you might not fit into any of these four classifications. When it happens, then you might find yourself in table ratings or substandard categories. Additionally, some insurers may have different categories for people who are identified as smokers.
You may also find insurers calling it Super Preferred Elite or Select Preferred life insurance. Whatever the insurer named it, the term “preferred” is always included in the classification name. Landing on this classification can offer the lowest premium. Hence, it is the best classification that a healthy individual can get.
Preferred vs non preferred life insurance group. If you belong in this group, the insurers may view you as royalty. To qualify, it is vital that you are healthy, without pre-existing health conditions, clean family history, a healthy lifestyle, and have an ideal height-to-weight ratio.
The second classification is preferred, which is not a bad place to be. You might get the same very affordable rate as a preferred plus, but it is still one of the best classifications. You are part of this group if you are generally healthy but have manageable high blood pressure or high cholesterol.
If you are part of this group, then you are doing well. There is a higher chance to land on this classification if you are in good health condition, but you are not in your ideal height/weight range. Also, insurers take a look at your family’s health history to avoid future surprises.
If your medical examination report came back with some notes and you are slightly far away from your ideal height and weight ratio, then you might fall into this classification. The difference between the standard plus and standard is that your family’s medical history plays a major role in determining your premium. Except for a high insurance premium rate, but you are sure to get insured.
Risk classifications used by underwriters for life insurance?
This life insurance classification does not have a specific rating like others. Instead, rates are based on your health status and family medical history. Therefore, you will be placed within the substandard category or table ratings.
These classifications are graded according to letters of numbers (A to J, 1 to 10). It is because you may have very complicated health issues and history. If you recently encounter health issues like diabetes or heart attack, you might also fall in this classification.
The rates are determined based on the average of the standard price with additional 25% for every step that you take down the table ratings. The following are example of rates as they go down in the life insurance underwriting classes: What is my health class?
- A = Standard + 25%
- B = Standard + 50%
- C = Standard + 75%
- D = Standard + 100%
- E = Standard + 125%
- F = Standard + 150%
- G = Standard + 175%
- H = Standard + 200%
- I = Standard + 225%
- J = Standard + 250%
The bad news is that if you reach the baseline, then you might pay an additional 250% on premium rates that are not ideal. However, you will get the policy that you need to cover for future expenses. In case you have dependents that require protection, you may still be able to secure them if you pass away.
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What determines a life insurance health classifications?
It is already an open book that health largely affects life insurance premiums. Hence, once you apply for an insurance policy, you have to get through a series of processes like a phone interview, medical examination, and the underwriting process. At the end of the process, the insurer will assign you a specific classification to determine your rates.
Furthermore, insurers will dig deeper into your lifestyle and health status to know which classification or life insurance table you would fit in. Also, each insurer has its way or system to determine the weight of each factor and how it will affect your classification. That is why you will see different quotes for the same classification from different insurers.
Insurers, allow the underwriter to make some adjustments and look at some criteria known as “stretch criteria” when deciding for an applicant’s risk. It is an important step to offer some flexibility in giving classifications. This process is to stay competitive against other insurers who might offer better premium rates.
The following are common factors that might affect your classification:
An important part of the process is going through medical examinations and answering questions about current health conditions. Questions might require you to answer prescription medications you are taking or taken, existing medical issues, and treatments. The insurer might also need an attending physician’s statement or APS from your doctor. It is to know more about your health status and history.
Height and Weight Ratio
Insurers will examine your height and weight to find out if you fall in a specific range. It is through the use of BMI or Body Mass Index measurement. Therefore, it will help the insurer know if you are underweight, overweight, or obese based on CDC guidelines. You might get a higher insurance premium rate if you are under or over your healthy weight.
Moreover, insurers are not only interested in your current weight but also in your previous weight history. You might want to lose weight before applying for a policy, as it will help you get an affordable rate.
However, it is only applicable if you lose or gain 10 pounds within a year before your actual application. In this case, you might only acquire 50% of the weight change because insurers want stable and healthy weight changes. It is to ensure that you do not only lose or gain weight to get better rates. Additionally, you need to maintain a healthy weight even after getting approved.
Tobacco is not only bad for your health but may also harm your policy rate. Being a regular smoker is a major factor in getting a higher premium rate.
Also, the occasional use of tobacco, chewing, and juuling might also have a serious impact on your insurance premium. Using vape is also being regulated by insurers, but major life insurance providers do not offer non-smoker rates for vapers this year, 2021.
The following are ways on how tobacco smoking may affect your life insurance health risk classifications:
- Preferred: You will likely fall under this group if you did not smoke like occasional smokers and those who use smokeless tobacco.
- Standard smoker: It is still possible to get into the Standard classification if you choose to quit smoking at least for a year right before you apply for an insurance policy.
Quitting is one way to decrease your life premium rate over time. Therefore, the longer you stop smoking, the higher the possibility of lowering down your monthly premium. Think about the money that you can save as motivation to stop smoking.
Alcohol and Drug Abuse
Occasional drinking of alcoholic beverages will not harm your premium rate, but insurers will look at your drinking habit and possible abuse of drugs.
Some states approve the legal use of marijuana, but most major insurance providers still view cannabis as a risk when deciding for classification. Also, some insurers may classify cannabis users with similar rates to tobacco users. It is regardless of its legality.
However, there is still hope for cannabis users. There are insurers who provide marijuana users with competitive rates.
Family Health Background
You cannot choose your family, so this is something that you need to accept when applying for an insurance policy. Most insurers will ask you to disclose your family health history at the beginning of the application process.
It means that you need to give information about a relative who has been diagnosed, treated, or died from serious illnesses like cancer, diabetes, heart problems, or kidney diseases.
Family health history is a huge factor for almost all insurers in determining classification. In case you have a history of one of these serious illnesses, then it is a red flag for insurers. This information will be used against you, especially if there is a history of death within the family before 60.
This factor is catch-all as it includes your overall lifestyle, such as your work and hobbies. In case you like risky actives like flying a plane or a professional wrestler, then there is a higher chance of premature death than someone who spends most of their time inside the comfort of their home. Unfortunately, it is a fact that you might end up paying higher premium rates.
A flat rate is being offered for this type of risk, and it may vary from one insurer to another. However, expect to pay at least 2 to 5 dollars a year for every $1,000 spends on coverage. It means that you might need to pay an additional $5,000 a year for a $1,000,000 policy.
Furthermore, driving history is also included in risky behavior. That is why insurers try to pull out a motor vehicle report to know your status. Therefore, if an insurer sees some DUIs or DWIs on your driving record, get ready to pay for a higher monthly premium.
Misbehavior might not affect your chance of acquiring insurance or getting an affordable policy, but a felony might bring you to substandard classification. You might want to hold your application as long as you can to avoid paying higher premium rates.
Life insurance ratings
Information on factors behind insurance classification is very helpful, but it is vital to know how it affects the pricing. The following are breakdowns for 35 years old male getting a 20-year term life policy for $500,000 coverage.
Life insurance table rating chart
|Preferred Plus Non-Tobacco||$25.06|
|Standard Plus Non-Tobacco||$42.07|
|Standard Non-Tobacco, Table 2||$67.92|
|Standard Non-Tobacco, Table 3||$78.09|
|Standard Non-Tobacco, Table 4||$88.76|
|Preferred Plus / Preferred Tobacco||$94.55|
|Standard Plus / Standard Tobacco||$128.87|
|Standard Tobacco, Table 2||$190.13|
|Standard Tobacco, Table 3||$220.30|
|Standard Tobacco, Table 4||$251.50|
Methodology: Rates are calculated for males living in Columbus, Ohio, obtaining a 20-year, $500,000 term life insurance policy. Quotes are based on a composite of policies from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by carrier, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 2/2/2021.
As you can see, there is a considerable difference between the best classifications to the worst. Hence, it can make your policy ten times more expensive. It is important to bear in mind that table rating might still go down depending on the insurance provider.
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Classification of life insurance policies
The classification is the final destination of how much insurance premium you will pay to secure your family. So, you must try to get the best insurance rates possible.
The general rule of thumb is to apply now and never think twice if you know you need a life insurance policy for your family. Insurance rates get higher every year by about 4.5 to 9 percent. Therefore, the younger you are by the time you apply, the more savings you can get.
As mentioned above, smoking tobacco is a significant factor for a higher premium. The earlier you stop smoking, the more you give yourself a chance to acquire affordable policy rates. A 20-year term policy for the non-smoker class can save you around $5 or more than falling into the worst smoker class.
There are health factors that are beyond your control, but there are useful steps that you can do before taking a medical examination.
- Fasting before the medical exam (6-8 hours): It will help you control your blood sugar and cholesterol level. The best time is to schedule the medical exam in the morning, so you do not feel very hungry.
- Hydrate yourself: Some people might overlook the right amount of water per day, but make sure you drink enough days before the exam. It helps you to dilute veins making it easier during the blood test. However, stay away from sugary drinks and caffeine.
- Stay away from intense workouts: Physical activity is good for life insurance premium but not before the medical examination. It is good to rest the day before the exam and avoid extreme exercises.
- Detoxify: The week before the medical exam, it is necessary to avoid taking any medication like herbal supplements and tobacco. Let your examiner know if you are taking a maintenance medication.
- Stop smoking– If you want a good blood test, it is good to quit smoking a week before the exam. However, it will not help much with your classification if you are a chain smoker.
- Prepare medical records: It is good to prepare medical records like written information from your attending physician.
- Wear light clothes: Weighing is part of the examination, so it might help to wear light clothes to avoid adding on your actual weight
These tips are very useful to get a positive medical exam result, but the best way to get a competitive classification is by having a healthy lifestyle.
Insurers are very keen on observing a healthy lifestyle to ensure that you are not faking it for the sake of lower rates. When it comes to losing weight and quitting smoking, changes must be around one to two years before you can get a lower rate.
Moreover, having a health condition, such as high blood pressure and high cholesterol, does not mean that you will automatically get a low classification. Trying to lose weight and managing your health can bring you a competitive rate.
Insurers appreciate clients who want to get better and become healthy. You may show recommendations from your doctor, past and current treatments.
Why is a life insurance risk classifications so important?
When running a quote on our website, you will see different rates from each carrier side by side. The results below show how much the cost can differ from Preferred Plus to a Standard rate. The price is can significant as you get older or need more coverage.
So how do you know which health category you will qualify for? You don’t. And not one does until the underwriting is complete and the underwriter has everything they need to make an offer, so go ahead and fill out the application and see which class you will fall into. There is no cost to fill out the application.
One thing we can do is a pre-assessment if you would like. Give us a call, and we may help with what you may qualify for. It consists of asking a specific set of health questions, and we can get you a more accurate assessment.
Frequently Asked Questions
What is a class rating in insurance?
A class rating in insurance is a system used by insurance companies to categorize different types of businesses or industries based on their level of risk. This helps insurers determine the appropriate premium to charge for coverage. The class rating system considers factors such as the type of business, its size, location, and claims history.
What is the classification of life insurance?
The class on a life insurance policy refers to the risk classification of the policyholder. This classification is based on factors such as age, health, and lifestyle habits and determines the premium rate for the policy. The higher the risk classification, the higher the premium rate. There are typically four classes: Preferred Plus, Preferred, Standard, and Substandard.
What are the different life insurance health classifications?
The different life insurance health classifications include preferred plus, preferred, standard plus, standard, and substandard. These classifications are based on age, health history, lifestyle, and medical conditions. The better your health and lifestyle, the higher your type and the lower your premiums will be.
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After starting his financial career with Phoenix Home Life Insurance Company back in 1992, Scott decided he wanted to provide people with an easier and more enjoyable way to buy life insurance. That was the start of Coach B. Life Insurance, whose mission is to be transparent, honest, and helpful to customers — without ever bugging or pushing them.
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