New to purchasing life insurance and you’ve been told you could be rated? This article explains what life insurance table ratings are, how they may affect your premiums, and some possible reasons why you may get rated.
In general terms, a rating means an increase in your price for the insurance you applied for. For one reason or another, the underwriter who reviewed your application saw fit to classify you as a higher risk than the average person.
While life insurance table ratings vary slightly, they all work in the same way.
When you buy a life insurance policy, how much you pay on a monthly or annual (the cheapest way to pay) basis is determined by your gender, the amount of coverage you’re seeking, and your risk class.
First, risk classes are divided by gender. All things being equal (like age, death benefit amount, etc.), a male will pay more than a female. This is because the life expectancy for a female is longer than a males, meaning the insurance company has slightly better odds insuring a female.
Second, you’re divided among smokers and non-smokers. A person who uses tobacco products will pay more than a person who doesn’t smoke, because the life expectancy of a smoker is less by 7 to 12 years.
If these were the only factors, the cheapest person to insure would be a healthy, female non-smoker. The most expensive would be an unhealthy male who uses tobacco.
Once the first two have been established, your risk class is based on your family history, criminal history, driving record, and your health. This is where life insurance table ratings come into play. If none of these items raise any flags, life insurance table ratings are of no concern to you. But, if one or more of these pertain to you in a negative light towards the insurer, you could be rated.
Life insurance table ratings are loosely based on point systems (varies by carrier). For every item which an underwriter finds as a possible risk to the life insurance carrier you applied to, you’re given a point (sometimes called a debit). But don’t worry, you can also have points removed (called a credit) which can offset these things which don’t look favorable upon you.
If you have to many “points” against you, you begin to fall below the Standard, or average, premiums into what would be called Sub-Standard, or rated, premiums. These life insurance table ratings incrementally increase your premium based on how far down you go. Here’s an example:
As you can see, Steve accumulated enough points to where his premium doubled. While this might seem treacherous, not only did he still get approved for life insurance, but he didn’t even get the worst of it.
TIP: Using an independent life insurance agent can not only help you avoid ratings in some instances, but help you find the best rates even if you do. Some of the top life insurance companies in the U.S. use Standard Plus tables.
Life insurance table ratings vary from carrier to carrier, but you can assume for simplicity’s sake of up to 10 ratings. Each additional rating which you accumulate is equal to a multiplier which increases your price. Such as Steve’s case above, his Table 4 rating resulted in doubling his premium.
(25% x 4 Tables) = 100% Increase
Using life insurance table ratings helps the life insurance industry to standardize their quoting methods to help promote fairness for the consumer, as well as hedge against those individuals who pose more risk than others. It wouldn’t be fair for a perfectly healthy person to pay the same amount as someone who has significant health concerns.
If you have more questions about what life insurance table ratings are, or why you were rated, we’ll be happy to answer those questions for you. In some cases, a person who was rated by one carrier could receive no ratings by another, and we can help you in this matter as well.
This could save you a lot of money over the life of the policy. It’s always worth a try, right?