Some individuals who shop for life insurance, have no understanding about it. They assume that they can choose how much insurance coverage they want. Then the insurance company will tell them how much they have to pay for it. There is a lot more that goes into life insurance shopping. Insurance companies are taking a risk insuring people. They are going to make sure that they reduce those risks as effectively as possible. If they didn’t do this and just insured anybody that asks they would soon be out of business.
Life Insurance Risk Classification
To protect themselves the insurance companies have developed risk classification. This is what they use to determine how much they are going to charge. For the different life insurance packages, they offer. Each insurance company develops its risk classification. This is why each insurance company is different. There are four main areas when it comes to life insurance. Ones that they are going to put emphasis on when it comes to insurance applicants. Insurance companies operate differently in the country that they serve. The US and Canada are very similar in the way they deal with insurance. However, there can be variations here as well. Normally there are industry standards. Ones that insurance companies will use. Even so, they will still vary in what they offer. So it doesn’t mean that every risk Classification is going to be identical. As it pertains to each insurance company.
Four Main Concerns of the Insurance Companies
- Your age
- The amount of insurance that you want
- The number of years for the coverage.
- Plus, what risk classification the insured shopper fits into
High-risk Insurance Classifications
There can be many different aspects about what would put one in a high-risk category. It wouldn’t be fair to take someone with minimal high risk and put them into an excessively high-risk category. So the high risk is looked at on an individual basis as well.
The main classifications used in general consist of 5 classifications:
- Class 1 preferred plus non-smoker
- Class 2 preferred non-smoker
- Class 3 non-smoker
- Class 4 preferred smoker
- Class 5 smoker
As one can see from the classification titles smoking plays a very big factor. When it comes to life insurance. Some smokers quit. These individuals will enjoy a reduction in premiums. They will often base the non-smoker on a 12 month period and a 24 month period. Since they quit smoking. This determines the classification that they will enter into. The class one preferred plus non-smoker is for the individual that has never smoked. Or hasn’t smoked within the last 24 months. Also, they meet all the other favorable criteria. Ideally one would want to end up in the class one preferred plus non-smoker category.
Opposite to this would be the class 5 smoker who is healthy but is a smoker. Keep in mind that this is just one example. Of how an insurance company can set up its classifications. They will vary, but there are also industry standards that they do keep in mind.
The high-risk factor looked at with life insurance that gets a lot of emphasis is going to be healthy. There are so many health issues. It means the insurance companies have to look very closely at the different factors. The major ones that most insurance companies will focus on are:
The smoking status metric is as above. Now additional metrics get added to this which is also the main focus.
Using these classifications another metric becomes a factor. It is blood pressure. If a medical is required blood pressure will be part of the medical. The reading for the blood pressure needs to fall under certain acceptable standards. According to age. This will then determine the classification that one would fit into. Based on their smoking status and their blood pressure.
For looking at the metric for weight, it gets calculated on the build which is height and weight. There will be different classifications for this for males and females. The individual’s height and weight will determine what classification gets used. Along with the other metrics used.
Cholesterol is a big concern for insurance companies. As it can be a precursor to other serious health conditions. Particularly related to heart and stroke. The insurance company may look at what the cholesterol readings are. These are then added to the rest of the information that they have collected.
Personal health status
The personal health status is going to focus on any specific health conditions. Ones that the individual is dealing with.
Insurance companies also get concerned about genetics. And will have some interest in family health history. That will focus on heart disease and cancer. As well as stroke.
Lifestyle focuses on what an individual’s average life is like. This will include whether they travel a lot for example. Or if they are involved in high-risk activities.
High-Risk Life Insurance Plans
Based on the complexity of the classifications it is easy to see how an individual can end up in a high-risk insurance category. For these individuals, it means that they need to do more insurance shopping. Even though there are industry standards, there are still variations within this. It gets assumed that all companies are going to do the same classifications. Then assign the same amount of premium cost. One insurance company may use the same classifications. But add a different percentage of additional costs compared to another. This can make a big difference in what it is going to cost the insurance shopper for their premiums. Another company may focus on putting the emphasis on the value of the insurance. They may offer a lower premium opportunity but at the same time offer a lower limit of insurance value.
The insurance companies are astute at screening their insurance applicants. Insurance shoppers have to be equally astute. At screening who they want to purchase their insurance from.