Life insurance premiums are a product of your age, health, lifestyle, occupation and hobbies, as well as the length and amount of coverage. Insurers reserve their best rates for applicants they consider least risky — and that’s where classifications come in.
How do life insurance classifications work?
When you apply for a policy, your insurer assigns you to a risk category based on your health and lifestyle. This category is known as a life insurance classification, and it’s a part of the underwriting process.
How much you’ll pay for coverage depends on this classification. The higher the classification, the better health your insurer considers you to be in. Applicants in the highest classes score the lowest rates, while those in lower classes pay more expensive premiums.
It all relates to risk: If you’re healthy and lead a safe lifestyle, you’re less risky to insure. If not, your insurer may be willing to take on the financial gamble, charging you higher rates to cover the risk.
What factors do insurers take into account?
When determining your classification, your insurer will assess the following factors:
- Your health, family medical history, and any preexisting conditions
- Your height and weight
- Your smoking status
- Your alcohol and drug use
- Your criminal history
- Your lifestyle — including your job, hobbies and driving record
Types of classifications
Most life insurance companies have a range of rating classes. The requirements for each class are roughly the same, but the names can vary.
Depending on your profile, you’ll fall into one of many common tiered categories:
Also called Preferred Elite, Preferred Select or Super Preferred, this is the highest possible classification. To reach this rate class, you’ll need:
- Excellent health
- Family medical history free of serious health conditions
- Ideal height-to-weight ratio
- Normal blood pressure
- Normal cholesterol readings
Your lifestyle and driving record counts too. You likely won’t make it into Preferred Plus if you’ve had a DUI within the past five years or more than two major traffic violations or accidents in the past three years. And you’ll miss out if you’re a smoker or have a high-risk job or hobby.
The second-highest tier has similar but less strict qualifications:
- Excellent health
- Average height to weight ratio
- Average blood pressure
- Average cholesterol levels
Generally, you can’t enter this rating class if your parent or sibling died from cancer or heart disease before age 60. Most insurers require you to be a nonsmoker for three to five years before applying for a policy — but some allow a celebratory cigar once a month.
Sometimes called Standard Plus Nonsmoker, this class is for people who have a clean family medical history and don’t touch tobacco. If you’re given this rating, it means you’re in good health, but there are issues your insurer wants to keep an eye on — like your blood pressure levels or weight.
If you score average ratings across the board, you’ll likely land in this category. Your medical exam might have revealed that you have issues like:
- Poor height-to-weight ratio
- Elevated cholesterol levels
- Family history of serious health conditions
While you may have an average life expectancy, you’re considered insurable — and that’s the important part. If you’ve been a nonsmoker for at least one year, most insurers will consider you for this class.
This classification is for smokers who would otherwise qualify for preferred rates. If you’ve quit smoking in the past 12 months, you could still land in this class. Most insurers want to confirm you’ve stayed away from cigarettes for at least a year before giving you a nonsmoker rate.
This class is for people who smoke regularly. Because smoking is linked to cancer, respiratory diseases and other health issues, including a lower life expectancy, insurers compensate for that risk by charging higher rates.
What does substandard mean?
“Substandard” isn’t so much a rating, but a way to classify policyholders who don’t easily fit into an insurer’s set rating classes. A substandard policy extends coverage to riskier applicants — like those with high-risk occupations or health conditions like diabetes — at higher premiums.
If you’re considered substandard, you’ll be given a “table rating” based on your profile. Some companies use a numbered system (usually 1-10), while others use letters (A-J). Typically, if you score a high A or B, your insurer charges you the standard rate plus 25%. The lower your rating, the more you’ll pay for coverage.
Here’s an example of how your insurer might structure their substandard pricing:
- A = Standard rate + 25%
- B = Standard rate + 50%
- C = Standard rate + 70%
- D = Standard rate + 100%
- E = Standard rate + 125%
- F = Standard rate + 150%
- G = Standard rate + 175&
- H = Standard rate + 200%
A poor rating can hike up your rates significantly, so it’s important to shop around if you have a health condition or lifestyle choice working against you. The good news is: you still qualify for coverage, so you’ll still be able to protect your family to some extent.
How to get cheaper rates
While you can’t control your age or family health history, there are a few things you can do to reach a higher rate tier:
- Quit smoking. This is the best way to lower your life insurance rates. As a smoker, your insurer will double or triple your premiums — or even more, if they have stricter underwriting standards. To qualify for nonsmoker rates, you’ll need to do away with smoking for at least a year.
- Manage your health. Work with your doctor to determine your target weight, blood pressure and cholesterol levels. Improvements in any of these numbers can lower your rate.
- Follow your doctor’s orders. Insurers like proactive applicants. For example, if you have a chronic illness — like diabetes — but can prove that you’re managing it with the right treatment and medication, you might not pay as much for coverage.
- Apply now. Rates increase as you age, so don’t wait to apply for coverage as soon as you identify a need for it. If you’ve recently quit smoking, consider taking out an annual renewable term life policy for a year or two until your insurer classifies you as a nonsmoker.
Here’s what to do in the days leading up to the medical exam, if you’re taking one:
- Fast for 3-6 hours. This will allow your doctors to get the most accurate blood sugar and cholesterol reading. Many people schedule their medical exams first thing in the morning for this reason.
- Avoid intense exercise for one day prior. High-intensity workouts can spike your blood pressure and affect your urine sample.
- Eat clean and avoid alcohol. Steer clear of caffeine, alcohol, fatty foods and excess sugar for at least a day before your exam, as these can skew your reading.
Compare life insurance companies
Life insurance companies use classifications to determine how risky you are to insure — and how much you’ll pay for your policy. While most factors hinge on your health and family medical history, you can take steps to reach a higher rate class, like quitting smoking.
Just like underwriting standards, rates vary widely among insurers. To get the best possible premium for your needs, compare top life insurers before signing up for a policy.