Preferred vs. Standard: How Life Insurance Categories Affect Your Rates
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When your application to buy life insurance is approved, your insurer will assign you to a risk class based on your health and lifestyle.
Also known as a rating category, the group you end up in is important. Along with factors like your age and gender, it'll determine how much you’ll pay for coverage. The healthiest people with the safest lifestyles are considered the least risky in the eyes of insurers, so they're placed in the categories that qualify them for the lowest rates.
» MORE: Average life insurance rates
Life insurance risk classes explained
The best life insurance companies have several rating classes. Although the exact names differ from one company to the next, you can expect to find some generic categories:
Super preferred nonsmoker: Applicants in excellent health who haven’t smoked or used nicotine or nicotine substitutes for at least five years may land in this category and get the best possible rates. You’ll need to show you’re at a normal weight for your height, with normal blood pressure and cholesterol readings and a clean medical history. Generally, there can be no death due to heart disease or cancer of a parent or sibling before age 60. Your driving record counts, too. You probably won’t make it into the top class if you’ve had a DUI conviction within the past five years. You also will be disqualified if your license has been suspended or if you’ve had more than two moving violations or accidents within the past three years.
Preferred nonsmoker: The second-best category is also associated with excellent health, although you will get a little more leeway on blood pressure, cholesterol and weight. With some insurers, smoking the occasional cigar won’t disqualify you from preferred nonsmoker rates, as long as the results from your nicotine test are negative. A premature death of a parent or sibling from cancer or heart disease typically isn’t acceptable. You don’t have to look like a fitness model to qualify for these favorable rates, either. For example, A 5-foot-10-inch man can weigh 129 to 219 pounds, and a 5-foot-5-inch woman can weigh 112 to 189 pounds to qualify for “preferred” rates with AIG, according to Quotacy, an online life insurance brokerage.
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Standard plus nonsmoker: This category is for nonsmokers who are generally in good health but don’t quite make the preferred category. Treatment for high blood pressure may be acceptable, for instance, as long as readings are in a normal range.
Standard nonsmoker: The average person falls into this category. Being overweight or being treated for elevated blood pressure may be acceptable, as would the death of one parent or sibling before age 60 from heart disease or cancer.
Preferred smoker: This category is for smokers who otherwise would qualify for preferred rates. If you have recently quit smoking, you still may get smoker rates. Typically you must be a nonsmoker for at least five years to qualify for the best nonsmoking rates, at least three years for the second-best rates and one year for standard nonsmoker rates.
Standard smoker: This is for smokers who otherwise would fall into the standard nonsmoker category.
Missing the 'standard' cut
If you're an average person with a normal life expectancy, you'll probably qualify for standard rates.
Some people may not qualify for standard rates because of health conditions such as diabetes but will still be eligible for coverage. In cases like this, the insurance company assigns a “table rating.” Some companies use numbers, such as 1, 2 and 3, and some use letters, such as A, B and C. Each higher table rating typically adds another 25% to the standard rate. Thus a table rating of C means a standard rate plus 75%.
Sometimes an insurer might attach a temporary extra charge, known as a “flat extra.” A cancer survivor, for instance, might qualify for standard rates plus a $5 flat extra per $1,000 of coverage for five years. On a $500,000 policy, that would mean an extra $2,500 a year in addition to the standard rate for the first five years.
If you don’t qualify for a low rate, you can ask the insurance company for the reason behind its decision. In some cases, the insurer may not have all the information it needed — and if you can provide it, the company will typically reconsider your rate.
Will insurers look at my finances?
Financial underwriting is often overlooked. Insurance companies will consider your income and assets to determine whether the amount of coverage you’ve applied for is justified. They will take into account the value of any other life insurance policies you already have, and let you know how much coverage you qualify for.
Your credit score won’t affect your life insurance rates, but the insurer will look at the past seven years of your credit history. If you have a bankruptcy on your record, you may be deemed “riskier” to insure and may end up being charged a higher premium.
How to get better life insurance rates
You can’t control some factors, such as your family medical history, but you can make other changes to get more affordable life insurance.
Quitting smoking may be easier said than done, but ditching the habit is a surefire way to get cheaper coverage. Smokers typically pay two to three times — or more — what nonsmokers pay for life insurance. You’ll need to abstain from tobacco for at least a year to qualify for nonsmoker rates at most companies.
Losing weight if you’re overweight or obese can also help you qualify for better rates. You can typically get life insurance if you’re overweight, but improving your blood pressure and cholesterol readings can potentially reduce the premium you’re offered.
Shopping around is essential because each company has its own life insurance underwriting criteria, so rates can vary — sometimes significantly. This means you might qualify as a preferred nonsmoker with one company and a standard nonsmoker with another, less lenient company.
An independent life insurance agent can help you navigate the rates from different insurers. This is especially important if you’re applying for life insurance with a pre-existing condition, such as a history of cancer. Risk factors can make it harder to qualify for the best rates, so you want to weigh all your options.
NerdWallet’s life insurance comparison tool can help you get life insurance quotes.
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More about buying life insurance with a health condition
