The Life Insurance Application
Life Insurance Costs: Underwriting Rate and Premiums
When you apply for life insurance, the carrier considers a host of factors to determine how much your life insurance premium will be. Once these factors have been evaluated, you are assigned a rate or health class. Life insurance providers vary in terms of how they weigh different factors, but all use sophisticated techniques, specialists and statistics to help them determine the level of risk you represent. The basic question: How likely are you to die during the term you are covered?
It's easy to understand that age and medical conditions figure in. The younger you are and the better your health, the less likely you are to die. But when it comes to assigning your actual rate class, what are the carriers looking at?
Here are some of the specific factors.
Your blood pressure rating is an important risk factor to insurance companies. If you have high blood pressure, your heart is working harder than normal, putting you at risk for a variety of medical problems that are sometimes fatal. Among the problems are heart attack, stroke, heart failure and kidney failure. The symptoms of high blood pressure rarely show, which earned it the nickname "the silent killer."
Blood pressure tends to rise and fall throughout the day, and it's not unusual for it to rise when you are nervous. But if your readings are consistently high, you might have pre-high blood pressure, or stage one or stage two high blood pressure. When your blood pressure is measured, the high number is called systolic and the lower number is called diastolic. For example, if it reads 120 over 80 (this reading and lower is generally considered healthy) the systolic number is 120 and the diastolic is 80.
Sometimes pre- or high blood pressure is caused by a temporary situation, including stress, fatigue or a physical condition such as pregnancy.
Life insurance companies consider your cholesterol level or ratio to be important when determining risk. If you have high cholesterol, you are at increased risk for stroke, coronary heart disease (which can lead to a heart attack) and other adverse medical conditions.
It's normal - and necessary - to have cholesterol in your blood. Cholesterol plays a role in hormones, building cell membranes and other body functions. Your body produces some cholesterol, while the remainder comes from animal products, including eggs, shellfish, meat, dairy products and from foods containing trans-fat.
Cholesterol problems can occur when there is too much in your blood. It can't dissolve and can clog the arteries, so it must be transported from the blood into the cells by low-density lipoproteins (LDL cholesterol) or high-density lipoproteins (HDL cholesterol). You've probably heard LDL referred to as "bad" cholesterol, because too much of it can narrow your arteries, among other things. It's counterpart, HDL, is nicknamed "good" cholesterol because, among other benefits, it transports cholesterol away from the arteries.
In general, you are thought to be at a lower risk for heart attack and other medical problems if your cholesterol is at a healthful level.
The symptoms for high cholesterol typically don't show; you must get a blood test to reveal your cholesterol level or ratio. If you suspect that you might have high cholesterol, it is important that you find out from your doctor.
Family Medical History
Your family's medical history can influence what rate or health class an insurance carrier will assign you.
Risk factors fall into two categories: modifiable and non-modifiable. A modifiable risk factor is something that might be controlled by diet, exercise or medication. A non-modifiable risk factor can include your family's medical history. For example, if there is a history of breast cancer or early heart disease (heart disease that occurs before turning 60), this is a fact that you can't modify - it's history. Being aware of these risk factors can, however, help you to make dietary and lifestyle choices that promote greater health.
Insurance carriers often balance the likelihood of your history by taking into consideration when the medical problem occurred and who was affected. For example, if your great-great uncle was the only one on your family tree to have a stroke, it might not have the same impact as an immediate family member having a stroke.
Obviously, your family's medical history is not an ironclad map to what your future holds, but is used as a guideline by insurance carriers to assess risk.
Do you bungee jump? Scuba dive? Skydive? These and other hazardous activities can place you in a higher rate or health class, because they increase your likelihood for injury or death. Some occupations bring a higher risk, like flying helicopters or driving racecars.
In general, if you have an occupation with an element of risk or participate in thrill-seeking hobbies, you might not qualify for a preferred rate and will be placed in a higher rate class - even if you are healthy. It's easy to understand why; a cliff diver is more likely to die than a person who takes scrapbook classes. The insurance carriers must assess how risky your lifestyle is.
It's important to be honest on your application. If you engage in these kinds of activities or your work involves a risky element, make sure you disclose this information. If you don't and you die as a result of the activity, the insurance company might not pay the claim if it can determine that your lifestyle included this risk prior to obtaining insurance.
Insurance companies often consider mental health when assigning a rate or health class. As part of their risk assessment, they might determine that a person who has been diagnosed as depressed or is taking antidepressants is at a higher risk for suicide. Most policies have a waiting period - up to two years - for suicide, and are not required to pay claims that are the result of suicide until then.
Some insurance companies will allow for "reactive depression," which can be a temporary situation due to a traumatic event. They are typically more interested in whether or not the depression is a long-term condition.
Higher life insurance rates because of your driving habits? It's possible, if you have a tarnished driving record. Insurance companies want to know if you are at risk when you hit the road. In general, some companies believe that if you are cited with more than one moving violation in five years, your driving habits are risky and could lead to an accident. Simply put, safe drivers are considered less risky.
Insurance companies sometimes consider whether or not you travel to dangerous locations. For example, if you frequently visit countries where there are ongoing terrorist attacks, war zones or the threat of contracting a deadly illness is higher than other places, the companies might determine that your lifestyle holds greater risk than people who don't visit these places.
It might seem odd to answer questions about your credit history when applying for life insurance, but to an insurance company, your credit history can indicate risk. For starters, a shaky credit history or bankruptcy might show an increased likelihood to forfeit paying the premiums. Insurance companies go to great expense to perform the underwriting process, so they are interested in knowing if you are likely to keep your policy and pay your premiums on time.
Getting the Right Policy at the Right Rate
Insurance carriers consider a host of factors to determine your rate class (e.g., medical history, family history, tobacco usage, even recreational interests). If you believe you've made significant improvements to your health or lifestyle since you first applied for your insurance coverage, contact the company you purchased your policy through to see if your policy premium can be adjusted or reissued. For example, if you've quit smoking and have remained tobacco free for a sustained period of time (usually a year or more), you might be able to qualify for a life insurance rate class for non-smokers and therefore be able to get a policy with a lower rate.
Note: This information is not intended to be used as an underwriting guide for any life insurance company. The intent of this article is to provide general information only. Each life insurance company has its own individual underwriting guidelines that vary by company.