Carriers use a system of classifications to determine someone’s health, which in turn affect how much you'll pay for life insurance coverage.
Not all life insurance policies are created equal. The policy you get won’t necessarily be the same policy your neighbor gets. That’s because life insurance companies use a system of classifications to determine someone’s health based on a series of factors about that particular individual.
These classifications can affect how much coverage you can get at each price point. If you’re healthy, you’ll get a more favorable classification and more affordable rates. If you’re not so healthy, your life insurance classification will reflect that. Insurers want to figure out which of their customers are more likely to die while the policy is in force, because those are the policies that will cost money for the insurer to pay out.
Every life insurance company uses roughly the same classifications, although differently named classifications may have equivalents among other insurers. These insurers also have different rules governing the definition of each classification. For example, while it’s common to receive a less favorable classification for any type of tobacco use, some insurance companies may distinguish between tobacco products when determining your classification.
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You probably knew that your health affected your premiums; after all, when you apply for life insurance, you have to go through an interview process and schedule a medical exam. To further determine your rates, insurance companies will also assign you a life insurance classification. This process is part of underwriting.
Insurance companies look at a wide range of health and lifestyle factors to figure out which classification you fall into. Each insurance company has their own criteria for determining the weight of each factor and how it affects your classification, which is why you may see different quotes from company to company.
Insurers allow some wiggle room for underwriters to look at other criteria when judging an applicant’s risk, which is called “stretch criteria.” The same study showed that carriers did this primarily to allow flexibility in assigning classifications and to remain competitive against other carriers who might be willing to offer someone better premiums.
Here are some of the most common factors that go into determining one’s classification:
You’ll have to take a medical exam (also called a paramedical exam) and answer questions about your current health status. This includes any prescriptions you’re taking, any medical conditions you have, and how you’re treating those conditions. The insurance company might have also requested an attending physician’s statement (APS) from your doctor to get their point of view on your health history.
The insurance company will take a look at your height and weight to see where you fall within a certain range. Those with an appropriate weight for their height will come off the best, while those who are overweight will have a strike against them. The "acceptable" weights are different for men and women.
Keep in mind that insurance companies don’t just look at your current weight, but also at your weight history. Losing weight can help you save money on your life insurance, but not if you’ve lost (or gained) 10 or more pounds within a year of your application. That’s because companies are wary of large fluctuations and want to see stability. This ensures that you didn’t lose weight just to get a better deal on your premium and are going to hit the snack food and soda hard right after you’re approved.
They don’t mention it on the Surgeon General’s Warning, but smoking is bad for your life insurance premiums, too. Regular smoking is a major knock, but occasional smoking (like a cigar every now and then) or chewing tobacco can also have an effect on your premiums.
Many insurance companies will have levels specifically for smokers, as we’ll see in a bit.
Having a beer every once in a while won’t affect your premiums, but, when making their classification determination, insurance companies will take a look at whether you abused drugs and alcohol.
This is a big factor, and one that’s mostly out of your control. If your family has a history of illnesses, such as heart disease, it’s a red flag. This will count against you especially if there’s a history of death before the age of 60.
A catch-all category that includes how risky you live your life. If you’re a base jumper, a fan of flying single-engine planes, or a bear wrestler, your chance of a premature death is a bit higher than someone whose hobby is to curl up with a nice book on the couch. Unfortunately, that means your premiums will be higher.
This could also include driving history, which involves pulling up your motor vehicle report. If you have DUIs or DWIs on your record, your premiums will be higher. Also, consider grabbing an Uber every once in a while.
In general, there are four different classifications: Preferred Plus, Preferred, Standard Plus, and Standard. Some companies will have different names for them, but these are the most widely used. Then comes Substandard, which is a broad category that will include anyone who doesn’t fit into the other classifications.
Finally, as mentioned, some companies will have categories exclusively for those who identify as smokers.
Sometimes called Preferred Elite, Super Preferred, or Preferred Select, a rose by any other name is still the best classification you can get. You’re royalty to an insurance company. You’re in excellent health, you have an ideal height/weight ratio, and your family history is as squeaky clean as your lifestyle.
Well done, you’re paying the lowest premiums!
In this case, second place isn’t so bad. You won’t be getting the same deals as a Preferred Plus member but outside of a few minor factors, like high cholesterol or blood pressure, you’re in very good health.
You’re still doing pretty good. You’re in good health, but you might have a few outliers to keep an eye on and you’re not in the ideal height/weight range. Your family history is good, so you shouldn’t have any surprises in your future.
You don’t have the best height/weight ratio, you have an average life expectancy, and your medical test came back with a few notes. The main difference here is that your family history plays a role, and there are instances of family members having issues with something before the age of 60. But you’re still able to get insured, which is the important part.
This isn’t a specific rating classification like the others; instead, based on your health and history, you’re placed in what’s called a table rating system, graded by either letters or numbers (typically either A-J or 1-10). This is because you have a complicated health history, or you’ve had some recent problems, such as a heart attack or diabetes.
Your premium price will, on average, be the Standard price plus 25% for every step down the table:
You could be paying as much as an extra 250% on your premiums, which isn’t ideal. But again, you can get insured. If you have dependents who are counting on your income and need protection, you’ll still be able to help them in the event of your death.
If you smoke, insurance companies will typically have two levels to cover you. Due to the added health risks, you’ll pay more as a smoker.
Preferred Smoker. This is just what it sounds like: you’d probably fall into the Preferred classification if you didn’t smoke. This will usually cover occasional smokers or people who use smokeless tobacco.
Standard Smoker. You’d fall into one of the Standard classifications if it weren’t for those pesky cigarettes. You should try knocking the habit, for your general health as well as the premium savings.
The hows and whys behind life insurance classifications are helpful, but the real question is: How does this actually affect your life insurance rates? Here’s how the numbers break down if you’re a 35-year-old male looking to purchase a 20-year term life insurance policy for $500,000 in coverage.
|Rating||Monthly Premium||Annual Premium|
|Preferred Plus Non-Tobacco||$23.41||$267.50|
|Standard Plus Non-Tobacco||$40.47||$462.50|
|Standard Non-Tobacco, Table 2||$71.10||$812.50|
|Standard Non-Tobacco, Table 3||$82.03||$937.50|
|Standard Non-Tobacco, Table 4||$92.97||$1,062.50|
|Rating||Monthly Premium||Annual Premium|
|Standard Tobacco, Table 2||$206.94||$2,365.00|
|Standard Tobacco, Table 3||$240.51||$2,748.75|
|Standard Tobacco, Table 4||$274.09||$3,132.50|
You can see how all those lifestyle choices we discussed earlier reflect in the dollar breakdown. Falling from the best classification to the worst would make your policy more than ten times as expensive. And keep in mind that table ratings can go down even further.
Your life insurance classification is the final determinant in how much you’ll pay to protect your family. So how can you get a better rating?
Apply now. As a general rule of thumb, your life insurance rates increase every year you put off applying, by an average of 8% to 10% a year. If you apply now, you’ll probably save money by default.
Stop smoking. As you saw above, smoking is a surefire way to paying more for life insurance. If you stop smoking, you at least give yourself a chance for affordable rates. In our example, you can save $16 a month or $200 a year just going from the best smoker class to the worst nonsmoker class.
Get healthier. Some of the health factors that affect your classification are out of your control – you can’t do much about your family health history – but there are some steps you can take. Losing weight, lowering your cholesterol, and lowering your blood pressure can all help you get a better classification. Even if you have a chronic illness, that doesn’t guarantee a higher rate; for conditions like diabetes, you should be able to show that you’re managing the disease and taking the proper steps and medication. Insurers view this favorably, and many will work with you if this is the case.
One thing to note: Life insurance companies want to know that healthier living isn’t just a fluke, or that you’re not just trying to game the system for lower initial rates. When it comes to things like quitting smoking or losing weight, you usually have to show changes for a year or two before the insurer will give you lower rates.
If you already have life insurance, are unhappy with what you’re paying, and want to see if you can get a better deal, Policygenius makes it easy to compare life insurance quotes and find one more favorable than your current cost. If you’re healthier than you were when you bought your current policy, you could save yourself a lot of money over the next few decades.
Disclaimer: Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.