Friday, March 18, 2011

Rated Vs. Non-Rated Life Insurance

A life insurance contract places potentially significant financial liability on the company issuing the policy. Carriers go to great lengths to properly evaluate this risk and determine an appropriate premium to ensure their ability to fulfill their obligations. At the conclusion of their risk analysis, some policies are issued with higher premiums than others based on the carrier’s perception of how much risk an applicant poses.

Underwriting


Underwriting is a term for the process life insurance carriers go through to evaluate how much risk you represent. Essentially, the purpose of underwriting is to estimate the likelihood that you might die before you reach the age of average life expectancy. The process involved in generating these conclusions involves a critical analysis of every aspect of your life that may affect your lifespan. Insurance company underwriters analyze your medical history, driving record, current health status, criminal record, employment, hobbies, and several other key factors.

Categorization


Life insurance companies utilize several structured categories to indicate the level of risk each client represents, and underwriting results will ultimately determine the category in which you are placed. Most carriers share similar underwriting standards. The industry primarily uses uniform names for these categories, making it easier to compare companies and their products. A non-rated policy would be one issued to someone who does not have an increased or unusual risk of an early death. Those categories are “standard,” indicating you are a person of average health, “preferred,” indicating you are healthier and less risky than average, or “super preferred,” indicating you are much healthier and significantly less risky than average.

Rated Policies


If your medical history or current health status indicate a possible early death, or if other aspects of your life are perceived by underwriters as potentially life-threatening, you would be categorized into a “table.” Table ratings typically range from “A” through “H” or “1” through “8.” Higher numbers or letters indicate more risk, and also higher premiums.

Flat Extras


In some cases, certain medical conditions, environmental influences, or other characteristics may present an increased risk to your life, but not permanently. For such situations, many life insurance companies issue policies with a temporary “flat extra” cost on top of the normal premium. Flat extra premiums are charged on a per-thousand-dollars-of-coverage basis. For example, if you purchased a $100,000 life insurance policy and were charged a flat extra premium of one dollar, your monthly cost would increase by one hundred dollars. That additional premium would remain on your policy until the duration of the flat extra ended.

Changing Your Rating


Life insurance policy ratings and underwriting categorizations can often be changed if your situation improves, particularly if your policy was rated due to a health condition that improved. By contacting the carrier and explaining that you believe your status is less risky than at the time you purchased coverage, you may request the reevaluation of your underwriting results and possibly obtain new underwriting. A review of more current medical records, another physical exam, and examination of additional documentation would be initiated. If underwriters agree that your new situation indicates less risk, your category will be updated to reflect the decrease in liability and your monthly premium reduced accordingly.

References


America Quote: Underwriting Guidelines

Further Reading


Insure: The Most Expensive Medical Conditions for Life Insurance Shoppers
CompuQuotes: Life Insurance Glossary
Life Insure: Medical Guidelines




This article is a Twisted Nonsense Exclusive! (03/18/2011)