Life insurance health class explained
The entire process for deciding whether to insure and, if so, at what annual premium rate, is called underwriting. During the course of this process, the prospective insurer applies all its accumulated knowledge and experience to deciding how big a risk you are. Obviously, if the insurer reaches the conclusion there's every chance you will collapse and die within the next five years, you're not a good prospect on a $1 million policy unless you're paying at least $400,000 a year installments. Even then, the company is not making a profit unless you live and pay for three years and many would refuse to insure in this situation. Insurers always like to shade the odds in their favor.
What are the usual health or risk classes?
Every insurer has a slightly different formulation but, as a starting point, here's a simple chart showing the approach:
Where you fit in this broad structure will depend on the answers you give to the medical questions or the results of your medical examination. As an aside, note any lack of honesty on your part during the evaluation process entitles the insurer to cancel the policy without liability. Since the life insurance companies talk with each other, any dishonesty means you will be blacklisted on all future applications for cover. The other element in this is age. The Preferred Class is the people with an above average level of health and life expectancy. Standard Class includes people representing an average level of risk. But the factors to place people will change as they age. A person aged twenty will have a completely different health profile from someone aged fifty. If you're a non-smoker, this entitles you to a discount. If your performance on one or more of the individual factors is substandard, the premium rate is loaded.
What factors are taken into account?
The following list is not exhaustive. It simply illustrates the type of factors life insurance companies consider significant. How each factor is weighted will vary from company to company which is why you should always shop around to get as many life insurance quotes as possible before deciding which policy to buy.
- alcohol or substance abuse including tobacco
- blood pressure
- body mass index
- cholesterol levels
- driving history
- family history
- high-risk occupation or a hobby like hang-gliding
- physical medical history
- psychiatric disorders
So if there's a good current level of health, no history of heart disease, cancer, etc, and no worrying features like convictions for speeding or base-jumping at weekends, a non-smoker who leads a healthy lifestyle will be Preferred. But someone relying on medication to control blood pressure and cholesterol levels will only be Standard. If any element is Substandard, e.g. diagnosed with Type 2 Diabetes, the life insurance company's reaction will depend on when the condition was diagnosed, how effective the treatment is, and how self-disciplined how have been in making dietary and lifestyle changes.