UPDATED: May 14, 2020
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When you started the journey to purchase life insurance, you were very likely faced with the dilemma of which rating class to apply for. Preferred. Select. Standard. What do these mean and where do you fit in? Understanding term life insurance rating classes and what they mean to the life insurance company and, more importantly, your wallet, is an essential part of feeling secure with your new policy.
What is a rating class?
A rating class is a risk category assigned by life insurance companies during the life insurance underwriting process. When you apply for a policy, the company will evaluate your application and place you into one of the several different categories of risk depending on your individual circumstances, such as current health, medical history, and family history.
Your rating class is based on your mortality risk or risk of being susceptible to death. Life insurance company actuaries determine the risks that will put you into a specific rating class. Information used to determine a rating class includes current health, medical history, family history and participation in dangerous activities. There are many mathematical equations and statistics behind the mortality tables used to determine mortality risk. And while you may have a family member who lived to be 100 while smoking, drinking and eating bacon cheeseburgers for breakfast, actuaries consider this to be an anomaly.
What are the various rating classes?
Life insurance companies assign the following rating classes to new policies.
- Preferred Plus (also known as Preferred Best, Super Preferred, Premier & Elite)
- Standard Plus (also known as Select)
- Sub-Standard (also known as Tables A-H)
Many people think the Preferred Plus rating class is considered to be the normal rating class, and feel somewhat offended if this is not the rating class they are assigned. In reality, the Standard rating class is given to people who have an average mortality risk. If you have an above-average mortality risk, you may be approved at the Standard Plus, Preferred or even Preferred Plus rating classes.
As you may have guessed, the price of your term life insurance policy will go up as your mortality risk goes up. Preferred Plus will be the least expensive and Sub-Standard classes will be the most expensive. If a rating class cannot be approved based on your mortality risk, the life insurance company will decline to issue the policy.
What rating class will I get?
It doesn’t matter which rating class you apply for; the company will approve you at the best rating class you qualify for. It can be frustrating when you apply for Preferred Plus and are approved at Standard. On the flip side, you would feel pretty good if you apply for Standard and are approved at Preferred Plus. Don’t worry too much about what rating class you apply for; it’s the approved rating class that the life insurance company gives at the end of the application process that matters.
While you may not be able to control some aspects of your mortality risk (family history for example), you can control the life insurance company you choose to apply with. An experienced agent can help you select the best company for your specific circumstances, because it is possible to get life insurance with medical conditions.
Have you ever been given a term life insurance rating class you did not expect? Let us know about it!
Our representatives field many different questions from customers each day, but one common theme tends to be the rating or risk classes that life insurance companies use to classify applicants. While a detailed review of rating class structures and their role in underwriting is probably not well suited for this blog, a brief summary of the basics should suffice.
Most life insurance companies use a basic hierarchy system; however, each company uses its own unique nomenclature, making it somewhat confusing for consumers. A common structure looks something like this:
- Preferred Plus (aka Super Preferred, Preferred Best, etc.)
- Standard Plus
- Substandard or Rated classes (usually called Table rated)
Naturally, premiums are driven off these rating classes. So Preferred Plus premium rates are lower than Preferred, which are lower than Standard Plus, and so on.
Our online quoting systems include functionality that helps to classify users within one of these classes to present a more accurate initial quote. By talking with applicants and reviewing applications, our representatives strive to submit all applications at the most appropriate rating classes, based on the information available. This is commonly referred to as field underwriting.
The important thing to remember is regardless of what rating class is quoted initially or written on the application, the insurance company is going to determine the most appropriate rating class through underwriting and then issue the policy at that class.
This works both ways. For example, if you submit an application at a Preferred rating class and you only qualify for Standard based on underwriting, the insurance company will give you the Standard rating class. However, if you qualify for Preferred Plus (better than applied for), you will get the Preferred Plus rate.