Buying a life insurance policy is a smart financial move, but to ensure you get the best possible rates, you need to understand life insurance classifications.
These classifications are something insurance companies use to assess risk. They use various information about you, your health, and your habits to determine your life insurance classification. The company uses this classification to determine your insurance rate.
Life Insurance Classifications
There are four main classifications:
- Preferred plus
- Standard plus
Then, there is a substandard table for people who do not fall into the four main classifications.
The criteria for qualifying for each life insurance classification may vary from company to company. Still, there are some general characteristics of each class that can help you to get an idea of which one you may fall into.
The preferred plus classification is for those who pose the lowest risk to an insurance company due to exceptionally healthy lifestyles. To fall in this category, you will need to be of a young age and have no health issues, including being overweight.
You also will have no risky habits or hobbies and nothing in your history that might raise a red flag. For example, you will have no drug use in your past or a close family member who had a fatal health condition. You also will not have any traffic tickets or criminal history.
Few people will qualify for the preferred plus classification. If you fall into this classification, you will enjoy the best possible life insurance rates.
The preferred classification is one step lower than preferred plus. More people will qualify for this class, but it still requires meeting high standards.
You need to be in very good health with no major illnesses or conditions. You may have some controllable or reversible issues, such as having high cholesterol or being overweight. Your family history is not as scrutinized either, so unless your parents have a serious health issue, you should be ok.
This classification still requires no history of risky behaviors, such as alcohol or drug abuse. You also cannot have hobbies that are risky or a criminal history.
Standard plus is slightly above average when it comes to the classifications. It allows for more health issues than the higher two classifications, but you should still be in pretty good health.
You also should have a decent family history. You can be overweight, but your lifestyle habits should be similar to the other two higher classifications. No using drugs or alcohol abuse, no criminal history, and no risky habits are all still requirements.
The standard life insurance classification is average and represents a reasonable risk to insurers. More people will fall into this category than the top three classifications.
Your health and lifestyle habits will equal out to the average life expectancy. You might have some bad family history or risky traits — you don't have to be perfect. You can have traffic tickets or a risky hobby. However, you still cannot have a criminal history.
If you do not meet the requirements to make it into any of the four main classifications, then your insurer will use the substandard table to figure your rates. This table is a rating system of its own. Insurers may use letters or numbers to represent each step on the table. The higher you go, the higher your premiums will be. Usually, rates increase by 25% at each step.
For example, the first step on the table is 1 or A. It represents rates 25% higher than what you would get if you fell into the standard classification. The last step on the table is 8 or H, which is 200% higher than the standard classification rates.
You will fall into the substandard classification if you have serious health issues, risky habits, a concerning family history, or a criminal record.
Special Note About Tobacco Use
You should note that if you use tobacco or ever have in the past, your insurer will likely place you in a special tobacco class. This is an additional classification on top of putting you in a regular classification or the substandard table. You will always have an increased rate over those not in the tobacco class.
Insurers will consider any type of tobacco or nicotine use when making this classification. This includes vape pens and nicotine replacement products. Some companies also put marijuana in this category.
What Classifications Mean for You
Understanding life insurance classifications is essential when you want to buy a policy because they will determine how much you pay. Your life insurance company will assess you through questions it asks you directly and a medical exam. The results allow the insurer to put you into a classification or to determine where you fall on the substandard table.
Ideally, you want to qualify for the preferred plus class as it offers the lowest possible rates. However, you should aim to qualify for a standard or above rating to get the most affordable and reasonable rates.
Your classification may also disqualify you for certain types of coverage or policies. You may find some companies will not offer you coverage if you cannot qualify for standard or above. Having a high classification can ensure you have more choices and can find the policy that best suits your needs at a price you can afford.
Understanding the Underwriting Process
Life insurance companies will determine what classification you fall under through the underwriting process. So, to determine your life insurance classification, you need to understand how the underwriting process works.
Underwriting is another name for investigation because that is what happens during this process. An underwriter working for your insurer will investigate all the information gathered about you and use that to figure out how much of a risk you pose.
Keep in mind that insurers are for-profit businesses. To make money, they need to bring in more than they pay out. When it comes to life insurance, this means keeping you as a customer for as long as possible so they can collect premiums year after year. Ideally, they want to collect more from you than they will pay out to your heirs.
If you die young, that means the insurer does not get to collect much money from you before having to payout. This is not a situation they want to be in.
At the same time, the insurer wants to insure a broad range of people. Death is never certain, even when you look at risk factors. By insuring a range of people that fit into all different classifications, the insurer is playing the odds that enough people will pay enough in premiums to help it turn a profit and be able to offer affordable rates to everyone.
By conducting the underwriting process, the insurer is figuring out when you are most likely to die based on known factors, such as your current health, your family history, and habit or hobbies you have that could put you at high risk for death.
Factors Impacting Your Risk Class
Now that you know all about risk classes and why your insurer assigns you to one, the next step is finding out how your insurer determines your life insurance classification. To do this, you need to learn the general factors companies will use.
Do note this may not reflect all factors every company uses since each company has its own process for determining risk classifications.
Age and Gender
There are a couple of factors that you cannot control but that the insurer will consider. The first is your age at the time you apply for benefits. Generally, the insurer will prefer to offer policies to those who are younger. If you are older, you will see an increase in your premium.
It is common for insurers to have a cut-off age after which they will not insure you. They also will typically have a lower age as well. There are companies that will specialize in offering policies for children or older adults, but these policies are generally more expensive than other policies.
The other factor is your biological gender. Statistics show that women live longer than men. Women are also less likely to take part in risky activities. You should note that Montana has a law forbidding companies from using gender when underwriting insurance.
Most insurance policies require that you undergo a physical exam. The exam may include testing, blood draws, and other steps to fully assess all areas of your health, including your mental health. Your insurer may also ask for your health records.
The insurer will also consider your body mass index or BMI. This figure compares your height and weight to produce a number that reflects your general body composition. The insurer is looking for a number that falls in the average range.
For most people, this number reflects how overweight they are. However, for some groups, such as bodybuilders, it is not an accurate representation of body composition.
Included in the assessment of your physical health is a review of your family medical history. Genetics often plays a role in what your health will be like in the future. Looking at the health of your close family members, especially your parents, can tell an insurer if you are likely to have health issues in the future.
Things such as cancer or cardiovascular diseases in your family history often raise a red flag for insurers. Early deaths are another cause for concern if they are due to a health issue that could be genetic.
The rest of the factors fall into the category of your personal history. This includes habits, hobbies, occupations, and places you've lived.
Your habits, such as using drug, alcohol, or tobacco use, often impact your health. Even if you no longer use substances, statistically you are still at an increased risk of adverse effects they may cause. A current issue increases the risk of premature death, which is a negative in the eyes of an insurer.
Other habits, such as driving recklessly, are something else an insurer will note. If your driving history is full of tickets for speeding or other signs of recklessness, such as DUIs, it will negatively impact your risk classification.
Hobbies are not typically too risky, but certain ones can be. High-risk hobbies may include mountain climbing, race car driving, or skydiving. Anything that could lead to physical harm is a negative mark on your risk level.
The insurer will want to know your current and past occupations. Many occupations will introduce you to health and safety risks with jobs in some industries being highly dangerous. If you work in an occupation or industry with high levels of accidents or reports of work-related injuries or illnesses, then it will raise red flags for the insurer.
Places you've lived in can have an effect on your life insurance classification. Certain areas may have risks associated with them, such as areas near nuclear plants or those with known cancer-causing agents in the soil.
Related to this are places you visit often. Certain countries or areas of the world have associated risks that could be something your insurer considers against you when determining your risk level.
Steps to Improve Your Classification
You can control many of the factors that life insurance companies will consider when assigning you to a risk classification. Here are some things that you can do to reduce your risk level and potentially qualify for a high classification and lower premiums.
Stop Substance Use
Using any substance will increase your risk to an insurer. However, this is especially true for tobacco. If your insurer knows you use tobacco, you automatically get higher rates than someone who doesn't. Most insurers will reward you as the years pass between the last time you used a substance and the current time.
Substance abuse can also lead to other behaviors that will increase your risk. For example, abusing alcohol may lead to a DUI or drug use may lead to criminal charges.
Ditch Risky Hobbies
If you participate in risky hobbies, you can see a great improvement in your life insurance classification by not doing them. It may be a hard decision to make, but it is something within your control and can save you a lot of money.
Consider a Change in Occupation
If you feel fine about quitting your job, consider switching to an industry or position that is safer. This can help you save big as it makes you less of a risk.
If this is not possible, you may be able to provide evidence of the safety standards within your current work environment. This could help if your employer has a solid reputation for maintaining a safe workspace.
Improve Your Healthy Habits
It never hurts to get healthier. This is a win-win situation because it will help you to reduce your insurance premiums while also enabling you to feel better and live longer.
You should aim for healthy eating combined with regular exercise. Make the switch to eating more fresh foods and less processed foods. Take a walk a few times a week or enjoy yoga each morning to start your day.
Advice for Buying Life Insurance
Here are some final tips to consider as you go to buy life insurance that can help you make the most of your life insurance classification.
Many people will try putting off applying for life insurance in the hopes they can improve themselves to get a better rate. This is a flawed way of thinking. First, you will only get older if you wait, which will negatively impact your risk level.
The second issue is that the chances for your health to get worse increase as you get older. You probably will not be as healthy as you are now in the future, so it makes sense to apply right now rather than waiting.
This applies even if you think things will change in the future in a more positive way. For example, insurers will often lower your rates depending on how long it has been since your stopped smoking. So, letting more time go by can equal lower premiums. However, you should still apply now.
You can ask for a review later to get lower rates, but you cannot help what may happen in the meantime. Plus, if something were to happen to you, your family would be better off with any life insurance coverage rather than none.
You should never choose a company and accept whatever it offers. You need to educate yourself with quotes from various companies.
Every company is different. They will each access you differently. They each offer different types of policies and benefits options. By looking at your options, you can more easily secure the best rate and policy to meet your needs.
Consider a No Medical Exam Policy
No medical exam policies allow you to get life insurance without the intensive health inquiry. You won't have to take tests, but you may still need to answer questions about your health and the company may look at your medical records.
A no exam policy may be a good option if you have concerns about what a doctor may find if you undergo testing. Do be aware these policies are often more expensive than policies requiring an exam, but for some people, it could make more sense to choose this option.
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