I often hear the ads on the radio which tout low term life insurance rates. A forty year old man can get ump-teen bazillion dollars of insurance for just 62 cents a year or something fantastic like that. Are these deals bogus? Of course not. But these ads fail to disclose just how rarely someone can actual qualify for those rates. These seemingly too good to be true offers are legitimate but assume that applicant will qualify for those best rates even though only a small percentage actually do. The public has little understanding of how life insurance companies classify their insured's so here is a basic primer.
Let's start with healthy people. Most life insurance companies have at least three and sometimes four different ratings for people who are healthy. In a three tiered system you have:
- Super Preferred
- Preferred
- Standard
A four tiered system would have a Standard Better rate between Standard and Preferred.
The vast majority of healthy people would be underwritten as Standard or Standard Better risks. To get a Preferred or a Super Preferred rating you have to be very close to ideal in your weight, blood tests, medical history, avoid hazardous activities, have a good family history, and be on few (if any) medications. For example, I am a pilot so even if every thing else was ideal I would never qualify for Super Preferred. In fact, most companies would never consider me at anything better than a Standard rate.
Many companies and insurance agents feel compelled to quote Super Preferred rates so they appear to be the least expensive. I shop life insurance at Standard of Standard Better rates which are much more realistic. When you apply for insurance you are applying for coverage, not a rate. The underwriter will assign the best rate you qualify for regardless of the rate you were quoted. By shopping at rates which are more realistic, a Preferred or Super Preferred rating is always a welcomed surprise.
To keep the issue confusing, there is no uniformity in the labels the companies put on their ratings. For example, one company I know of uses a three tired system of Premiere, Preferred, and Standard. Another calls the same three rates Select Plus, Select, and Ultra Standard. No wonder it is confusing.
Tobacco Use is also another area for confusion. Most companies offer the same basic ratings in a tobacco and non-tobacco version (yes, it is possible to be a Super Preferred Tobacco user but very unlikely). Even the definition of who is a tobacco user and who is not will vary from company to company. In it's strictest definition, anyone who has used any form of tobacco at all within the last year would be a tobacco user. Other companies will grant cigar smokers, tobacco chewers, and/or occasional cigarette smokers non-tobacco ratings.
There are some people who do not qualify for Standard ratings and those are referred to as Substandard Risks. Again, every company takes a different position when underwriting health issues. For some, diet controlled diabetes is not an issue when for others it is considered the same as being heavily insulin dependent. Discrepancies between companies are common with everyday health issues like high blood pressure, cholesterol medications, history of cancer, or heart issues. Even insurance agents find it difficult to keep up with the marketplace as underwriting standards are frequently changing.
Do not be tempted by rarely fulfilled promises of low cost life insurance. Meet with a professional with whom you can discuss your situation and health history. Then you can find the lowest cost coverage for YOU.
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