Life Insurance - Understanding Rating Classifications

I found an informative "Life Happens” article that helps explain life insurance rating classifications and thought I’d share and add to it.

Everyone who applies for “traditional" life insurance is assessed for coverage. Insurers provide coverage and premium rates in accordance with an applicant’s risk level. To that end, insurance companies typically place applicants in categories relative to their risk which involves their health as well as lifestyle choices. Smoking, for example, as a behavior associated with health risks, will impact which category an applicant will be assigned. Sometimes a person, due to health issues or lifestyle factors, may not fit into standard categories and will, instead, be assigned a table rating. While obtaining a policy is still quite possible, table ratings are associated with higher premium rates.

Note: While each insurance company has different underwriting policies, below are some generalized definitions of each classification. Not all insurance companies will agree on these same generalized definitions for each classification. Some insurance underwriters may be more lenient, than others, in regards to fitting a person into a specific classification. Hence it is important to note, that since all insurance companies do not follow the same rating criteria, you could be rated as "preferred select" by one company and just “preferred" by another for example, simply because of that company's individual underwriting guidelines. Also please keep in mind that not all insurance companies have all six of the classifications listed below. For example, one insurance company shows only to have three basic categories plus substandard ratings for non-smokers under age 70.

What Do Basic Classifications Mean?

  • Preferred Select: Sometimes referred to as preferred elite, preferred best, super preferred, or preferred plus, this category is associated with excellent health, a normal weight and height profile, and no other factors that might suggest increased health risk such as the death of a family member due to heart disease before age 60, for example.
  • Preferred: This category is associated with excellent health, though there may be a few minor issues like a slightly elevated cholesterol level, for instance.
  • Standard Plus: While associated with optimum health, there may be some factors that prevent the applicant from falling into a preferred category like high blood pressure or being overweight.
  • Standard: This category is associated with average health as well as a normal life expectancy. Minor health issues may be present or, perhaps, weight is not optimum. Factors such as these coupled with the death of a parent due to disease before age 60 could also be relative to this category.
  • Preferred Smoker: This category is for a person who would otherwise fall into the regular preferred category but smokes. Some insurers will place an occasional smoker in this category such as someone who smokes cigars only from time to time.
  • Standard Smoker: A smoker who is in otherwise standard health will be placed into this category. Since some providers offer non-smoker rates, someone in this category is apt to pay more than a non-smoker for the same type of policy.

What Happens When an Applicant Doesn’t Fall into a Category?

Many applicants do not fall into these categories yet are still eligible for coverage. Their health issues or lifestyles may prevent them from falling into a standard classification, but they can still be rated in accordance with their coverage risks. Insurers call this further classification system table rating system. Instead of preferred or standard categories, an applicant might be given a table rating with a number or letter to designate their rating. Depending on that rating, the applicant will pay an additional percentage if approved for a life insurance policy.

Understanding Table Ratings

Table ratings allow an insurer to further assess an applicant in accordance with their risk level. The rating allows the insurer to provide coverage but at an increased rate depending on that applicant’s table rating. For example, an applicant that has a table rate of A can typically expect to pay the standard rate plus an additional 25%. Someone with a table rate of G can expect to pay the standard rate plus an additional 175%. Usually table rates are issued for applicants that have definite health conditions. If the condition is deemed stable, the insurer will provide coverage and charge the rate associated with that applicant’s table rating.

Table Ratings and Life Insurance

Table ratings carry a higher rate, of course, but they do help insurers assess risk. Moreover, they also allow someone with a health condition to obtain life insurance which can be immensely important to the applicant and their families. If you are assigned a table rating, your insurer can discuss how that determination was made and why the rate is priced as it is. These table ratings are mostly standard throughout the industry. However, some life insurance providers are well-known for providing coverage to people with existing health conditions and may have more optimum rates and different coverage criteria than other providers.

Obtaining Coverage

If you are turned down for life insurance by one company, you may still qualify for coverage from another. The key is to work with a knowledgeable agent. One insurance company may deny you, while another insurance company may be happy to insure you even if it is at an increased premium rate.

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Source: Life Happens Post by Liran Hirschkorn 

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