What Are Life Insurance Classifications?
Life insurance companies sort applicants into groups called risk classifications, also referred to as risk classes. Your risk classification influences the premium paid for your policy. Here, we outline:
- The five primary risk classifications.
- How your risk classification is determined.
- Smoking and risk classifications.
- How to improve your risk classification and premium.
The Five Primary Life Insurance Risk Classifications
The following risk classifications are the most commonly used by life insurance companies. Policies administered by Ethos fall within these classifications with the exception of Standard Plus. The better your risk classification, the lower your cost.
- Preferred Plus: You’re in excellent physical and mental health. You have no family history of disease, an optimal height to weight ratio, and a clean driving record. Less than 10% of life insurance applicants land in this category.
- Preferred: You’re in overall great health, but might have risky traits or behaviors, like slightly high blood pressure or have recently acquired speeding tickets.
- Standard Plus: You’re in good health, though with perhaps more health, family history, or lifestyle risks than those in the Preferred category.
- Standard: You’re an average person with average risk—you might have health issues, a family history of disease, or a bit overweight.
- Substandard: This classification varies the most with carriers. You have more complex health issues, so you may be less easy to insure and require a deeper look. Most companies use a 10-step rating table (usually written as A-J or 1-10) to determine your cost. For every step you drop from a Standard classification, your cost increases by 25%. For example:
- A = Standard + 25%
- B = Standard + 50%
- C = Standard + 75%
- D = Standard + 100%
- E = Standard + 125%
- F = Standard + 150%
- G = Standard + 175%
- H = Standard + 200%
- I = Standard + 225%
- J = Standard + 250%
How companies determine who gets placed into which classification can vary from carrier to carrier. For you, this means that when applying for life insurance, your classification may differ depending on the company. This is why it’s essential to shop around and compare policies before committing to a carrier.
What Determines Your Classification?
During the underwriting process (the way that insurance companies determine how risky you are to insure), insurance companies look at everything from your medical prescriptions to your driving record. Your classification is determined as a result. Factors that influence your rate include:
- Current and past health: Your overall health will be reviewed in detail when applying for life insurance. This includes everything from how you grew up and where (maybe there are environmental issues in your area), to what illnesses you’ve had and how they were treated. In addition to answering questions about your health, carriers may ask you to take a medical exam and for your doctor to share information about your overall health through an attending physician’s statement (APS).
- Height and weight: Being overweight or underweight can present increased health risks, so life insurance carriers will look at your BMI (body mass index) to draw conclusions about your health. It’s not just about your current weight either. Companies like to see consistency and stability, so if your weight has fluctuated a lot, you may see that reflected in your premium.
- Family health history: Unfortunately, this is a factor that is out of your control but plays an important role in your classification. Carriers see your family health history as a window into any potential future health issues. Pre-existing conditions, heart disease, and cancer are often red flags for life insurance companies.
- Occupation and lifestyle: Many of your day-to-day activities affect your classification. Your occupation plays a large role—for example, a construction worker or pilot is considered a riskier applicant than a dietician or accountant. Your hobbies, driving record, travel locations and frequency of travel, and credit score are all examples that are considered.
- Smoking: Because smoking and tobacco use have well-documented, adverse effects on health, insurance companies often have their own policies rating smokers. You can read more about smoking and classifications in the next section.
Smoking And Classifications
Smokers will pay significantly more in premiums (frequently 50%-60% more) when compared to the rates non-smokers pay. Vaping, e-cigarettes, and sometimes marijuana can be viewed as forms of smoking, which you may see reflected in your premium. Most companies break up smokers into three categories, although Ethos doesn't currently offer Preferred Smoker.
- Preferred Smoker: You smoke the occasional cigarette, but are otherwise in excellent health.
- Standard Smoker: You’re in good health and a regular smoker.
- Substandard Smoker: You're a regular smoker in below average health.
Because the increase in cost is high for smokers, if you need life insurance, it is recommended that you quit smoking for a while and then apply. If it has been more than 12 months since smoking and you test negative for nicotine on a medical exam, many life insurance companies will no longer consider you a smoker.
Improving Your Classification And Rate
Your classification and cost are highly dependent upon your health and lifestyle, so positive changes in your life can influence the cost of your premium. Start planning for your life insurance needs now—it can save you thousands later on.
- Quit smoking: Smoking is one of the most expensive habits you can have when it comes to your life insurance premium. Even moving from a Standard Smoker to a Preferred Smoker will save you money.
- Improve your BMI and health: If your BMI falls outside of the normal range, work to get to a healthier range. Lowering your cholesterol and blood pressure are additional perks of improving your diet, and exercise and can make a huge difference in your classification.
- Apply now: If you don’t have any substantial changes to make (like quitting smoking), you can save a lot of money by applying now. Life insurance rates typically increase by 8-10% each year, so the sooner you invest, the more you’ll save. Uncertain about buying life insurance? Read more about why now is the best time to buy.
If you’re planning to improve your classification by quitting smoking or improving your health, you’ll need to prove that your healthy habits are permanent. Life insurance companies know that people may try to make their classification better by losing weight or quitting smoking, so be prepared to wait at least a year for life insurance companies to recognize your changes.
Being well-informed helps to ensure that you’re getting the best policy at a fair price. Our team is happy to answer any questions. Call us at (415) 702-1844, or email firstname.lastname@example.org. If you’re ready to get started, begin by filling out the form below.