The rated premium
By Steven Kobrin
Steven H. Kobrin, LUTCF
There are four typical outcomes of the life insurance underwriting process:
No. 1: The application is approved at the same rate as requested, or even at a lower rate.
No. 2: The application is approved, but at a higher rate than requested; the premium is Rated.
No. 3: The application is neither approved nor declined; instead, it is postponed.
No. 4: The application is declined.
The first outcome is clearly good news, while the others require more explanation. In this article, we will take a close look at the second outcome, the rated premium.
What is a rated premium?
If you are "rated," this means that the underwriter has decided you represent a higher risk than standard (or higher than standard plus, depending upon the carrier's particular underwriting classes).
This higher risk is represented in monetary terms as an additional premium, which is assessed on top of the standard base premium (or on top of the standard plus base premium).
These rated premiums are organized into tables. A particular rating is expressed by the corresponding table number (or table letter). A low rating of Table 2 (or Table B) indicates a slightly higher-than-average risk. Higher ratings, such as Table 10 (or Table J) point to a much higher risk.
Why were you rated?
A rating should come as no surprise if the carrier indicated it during the prequalification process. An unexpected rating, on the other hand, is a source of concern.
One reason for an unexpected rating could be that you were not adequately prequalified. This underscores the importance of finding a broker who is experienced in prequalifying your particular risk factors, and the importance of fully cooperating with your broker's information requests.
Another reason for an unexpected rating could be the discovery of new information during the formal underwriting process. Sometimes, the underwriter discovers negative information in the applicant's doctor records.
Other times, the rating is based on the lab results of your life insurance exam. Indeed, many people first discover they have a problem with blood pressure, blood sugar, or cholesterol when they apply for life insurance. The new medical problem represents a higher risk, which is translated into a rated premium.
How to handle a rating?
If the rating was expected, then simply proceed as planned. However, if the rating was a surprise, then you must consider a new plan of action.
For example, if the rating is based on your doctor records, then perhaps your records simply contain an error and need to be corrected. If your doctor can swiftly amend your records, then the carrier could remove the rating and you could purchase the policy at the originally quote price.
But what if the rating is based on the lab results from your insurance exam, pointing to a new medical problem? In this case, please immediately consult with your personal physician. Sometimes, even a second opinion is warranted. Your health is of paramount importance!
With regard to the life insurance purchase, the rule of thumb is that the applicant should buy the policy, even at the higher price. With coverage in place, no one has to worry about the beneficiaries being exposed to financial hardship, should the applicant's condition unfortunately become more serious.
This gives your physician time to evaluate and treat your condition. Meanwhile, your broker will monitor your situation and determine the appropriate time to shop the market place again for less expensive coverage.
Points to remember
If you are concerned about getting rated when you apply for life insurance, here are some tips to follow.
No. 1: Make sure your broker has a good track record in prequalifying life insurance applicants. He should have a good understanding of the market place, including which carriers are more competitive for specific risks.
No. 2: Fully cooperate with your broker during prequalification. Provide complete and accurate answers to all questions, and provide medical records as requested.
No. 3: If you do receive an unexpected rating, please immediately seek medical advice from your family physician. Bring a copy of all lab results from your life insurance exam and get your doctor's opinion on the matter.
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