Life insurance agents can use a lot of complex terms to explain how your policy works, but it doesn’t have to be complicated to understand. One of the most important concepts in life insurance is your risk category, also called a rating class. Your risk category determines your life insurance rates. If you are getting a new insurance policy today or plan to sign up in the future, understanding how ratings and categories work can help you qualify for the lowest possible monthly premium.
What are Life Insurance Rating Classes?
When you apply for a new life insurance policy, you will need to answer questions about your health history and, for some policy types, get a medical exam. With this information, an insurance underwriter will assess your overall health and assign you to a life insurance rating class. This rating class is the primary driver of the cost you pay each month —your monthly premium—to keep your insurance policy active.
Underwriters are charged with assigning every applicant to a risk category based on basic health information, like height, weight, and medical history, along with lifestyle factors like smoking status, profession, and risky activities. Specific activities like regular rock climbing, skydiving, hang gliding, and bungee jumping can be considered risky but in general, a young, healthy applicant will receive lower rates compared to an older, unhealthy applicant.
What are some common life insurance risk categories?
Preferred Plus, Preferred, Standard Plus and Standard are common life insurance risk categories, but these categories are not necessarily applied industry-wide. Every insurer uses a unique underwriting system and may have unique variations on these categories. For example, large insurer Metlife uses the categories Elite Plus, Elite, and Preferred for its top three. AIG uses Preferred Plus, Preferred, and Standard Plus. Some insurers may offer more than three categories. It depends on the insurer’s preferences and internal policies, but generally you can compare categories between insurers even if the categories have different names.
Preferred Plus – Preferred Plus rates are reserved for the healthiest, lowest risk applicants. Ultimately the underwriter is looking at the risk you will pass away during the term of the policy, and the healthiest, lowest risk individuals have the longest life expectancy. If you have a clean bill of health, no family history of cancer or heart disease and don’t regularly jump off of things at large heights, you will probably land in this category and get the lowest possible rate.
Preferred – If you are generally healthy but have one or two health risk factors that underwriters consider a red flag, like untreated high cholesterol or high blood pressure, you will probably fall into the second-best rating class: preferred. A risky lifestyle factor may also knock you down to preferred from preferred plus.
Standard Plus – If you have one or two medical issues but are still generally healthy, you will qualify for Standard Plus. With Standard Plus, you’ll pay more than the Preferred categories, but still don’t fall into the lowest tier with the highest rates.
Standard – If you have several medical issues or live a generally risky lifestyle, you will likely get the standard rating class. This means you will pay more than healthier and lower risk applicants, but still qualify for a regular life insurance policy.
Smokers versus nonsmokers
Within life insurance risk categories, there is generally a smoker and nonsmoker grade. However, some insurers don’t offer the highest level for smokers and may limit smokers to just Preferred Smoker and Standard Smoker categories.
If you want to save on life insurance, and live longer, you already know what to do. Give up the tobacco products and apply at a later time so you can qualify for a nonsmoker rate. Tobacco use is the leading cause of preventable death in the United States, according to the CDC, and life insurance companies know it. Because of the elevated risk of cancer, heart disease, and other deadly medical conditions, smokers pay a lot more for life insurance than non-smokers of similar health — possibly even tens of thousands of dollars more in total out-of-pocket premiums for a 30-year term policy. You can test this impact for yourself by using online quoting tools.
You can upgrade your insurance category – it’s all about risk
You can take steps to improve your health and lower your premiums! It doesn’t cost anything to apply for life insurance, so if you apply and get a rate or category you didn’t expect, work to improve your health and lower your risk so you can qualify for a better, lower cost risk category.
While you can’t control some of your health factors like family history, you do have a lot of control over your personal health and lifestyle. And those personal decisions can greatly reduce your risk of things like heart disease, cancer and diabetes, which in turn can greatly reduce the cost of your life insurance.
Term life insurance is much more affordable than many people realize, so don’t worry about one or two factors that might increase your risk. You can get a no risk, no obligation quote. And speaking to an agent can give you the opportunity to put your best foot forward when it comes to your unique health history. You can always apply today and hold off from signing a policy if you don’t like the results —but you can also keeping working to improve your risk category and lower your premiums.
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