When you apply for life insurance, the insurance company underwriters review your health and lifestyle factors. After their evaluation, they assign you to a risk class. If there are certain factors that place you outside the normal range of risk the insurance company typically insures, you may be considered substandard.
Let’s rewind. What is a risk class?
When you apply for life insurance, the insurance company assigns you a risk class based on their evaluation of your application and everything that may go along with it such as your medical history and driving record. This risk class determines what you have to pay to get life insurance coverage.
|For Non-Tobacco Users||For Tobacco Users|
|Preferred Plus||Preferred Tobacco|
|Standard Plus||Standard Tobacco|
|Table Ratings (Substandard)|
Similarly to how you pay higher car insurance premiums if you have a speeding ticket, you pay higher life insurance premiums if you have high blood pressure, for example. But the difference here is that with traditional life insurance your premium doesn’t get higher every time something bad happens, unlike with car insurance.
If you buy car insurance and then get into a car accident, your premiums are more than likely going to increase at your next annual renewal evaluation. If you buy a life insurance policy and then get diagnosed with cancer, the insurance company legally cannot raise your premiums. This is why it’s so important and beneficial to you to buy life insurance as soon as you need it.
Important note: Group life insurance policies you obtain through your employer do have renewals in which they raise your premiums. These renewals typically occur every five years and rates increase based on your age.
To give you an idea of how the risk class can affect your life insurance price, take a look at the example in the table below.
If a 30-year-old male applied for a $500,000 20-year term life insurance policy and was in great health and had no lifestyle risk factors such as speeding tickets or marijuana use he could be offered a Preferred Plus risk class and pay an estimated $20 per month, during the 20 year period of the policy. If this same healthy 30-year-old was a cigarette smoker, he could be offered Preferred Tobacco and pay about $72 per month.
|Male, Age 30, $500,000, 20-Year Term|
|Risk Class||Monthly Premium|
If you have multiple risk factors that deem you a high-risk to insure, you may be given a substandard risk class. Insurance companies want to approve life insurance coverage, but they can’t take on high risk without offsetting its costs. If you’re considered substandard, the life insurance company may still offer you coverage but will buffer their risk by asking that you pay higher premiums. These higher premiums can come in the form of a table rating or flat extra.
Life Insurance Substandard Risk Class: Table Rating
Being table rated means you will pay an extra percentage on top of the standard premium. The percentage amount you pay is determined by what table rating you receive from the insurance company.
Table ratings run alphabetically or numerically, depending on the insurance company. Each table rating is an extra 25% on top of the Standard price. Typical table ratings start at Table A, or Table 1, and can run all the way to Table P, or Table 16.
The table below shows an example of how the annual premium of a life insurance policy would be affected by a table rating if the policy being applied for cost $500 for someone with a Standard risk class.
|Table Rating||Percent Extra||Final Annual Price|
|Table A/1||25%||$625 (500+25%)|
|Table B/2||50%||$750 (500+50%)|
|Table C/3||75%||$875 (500+75%)|
|Table D/4||100%||$1000 (500+100%)|
|Table E/5||125%||$1125 (500+125%)|
|Table F/6||150%||$1250 (500+150%)|
Not all life insurance companies underwrite risk factors in the same way. For example, while one company may want to give a diabetic applicant Table 6 another company would be comfortable with Table 2.
This is one reason why applying for life insurance through Quotacy is beneficial to you. Quotacy is an independent life insurance broker and can shop your case around to multiple top-rated life insurance companies to help you get the best price possible for your particular situation.
Life Insurance Substandard Risk Class: Flat Extra
Another way life insurance companies balance out taking on extra risk for a substandard applicant is adding a flat extra to your premium. A flat extra is an extra payment added on top of the premiums to cushion an insurance company’s risk. Flat extras are usually given instead of a table rating if the risk factor is constant, such as deafness, or if the risk factor is decreasing, such as the aftermath of surgery.
The flat extra is a specific added dollar amount per $1000 of insurance coverage. These flat extras can be permanent or temporary. It’s even possible that you’re in perfect health and still get assigned a flat extra.
As an example, a mountain climbing instructor may be in great shape with no adverse health history and qualify for a Preferred Plus rating, but because of the hazardous career choice, the insurance company may tack on a permanent flat extra.
Eddie Johnson is 35 and applying for a 30-year $500,000 term life insurance policy. He’s in great health and works as a SCUBA diving instructor. The insurance company approves his policy at Preferred Plus but requires him to pay a permanent $3 flat extra.
If Eddie had a low-risk job, his 30-year $500,000 term policy would only cost him about $450 annually. But because of his risky job, the $3 flat extra means he pays an extra $1500 (3×500) on top of the $450. Meaning his annual cost is $1950, or roughly $163 per month.
If you receive a permanent flat extra, buy the life insurance policy, but then later on in your life the risk factor is no longer present, you can ask the insurance company for a reconsideration.
Let’s use Eddie as our example again.
Eddie quits SCUBA diving ten years into his term policy and takes over the sales department of a SCUBA store instead. Now that Eddie has a low-risk job, he can ask the insurance company for a reconsideration.
The insurance company will evaluate his situation and if they deem him no longer high risk with no other new health underwriting issues, they will remove the flat extra and Eddie would then only pay $450 annually for the remainder of his policy’s term, which would be 20 years.
I mentioned that a flat extra can be permanent or temporary. Eddie’s was permanent because the insurance company couldn’t assume he’d ever quit his job as a SCUBA instructor. A temporary flat extra may be given in a situation that there is a risk currently, but it’s likely to decrease over the years.
For example, a cancer survivor may be given a temporary flat extra for a few years to provide the insurance company extra cushion in case of remission. Or someone with a criminal history may be given a temporary flat extra until a certain number of years have passed since completion of parole.
As with table ratings, flat extra assignments can vary by insurance company as well. Your Quotacy agent will double-check that the life insurance offer you receive is the best option you have.
However, even after your Quotacy agent shops your case, there’s a chance they may not be able to find a better risk class offering. While you are not obligated to accept the company’s offer, we highly recommend that you do.
If you’re given a substandard rating because of your health and you decline the policy, your health could get worse and you may end up becoming uninsurable. But if you accept the policy and your health gets better, you can always reapply at a different time to see if you can get approved at better pricing. At least you’ll have financial protection for your family in the meantime. And if your health does get worse, you’ll be glad you purchased the policy when you did.
Apply for life insurance through Quotacy. Our agents work only on your behalf. No need to even give us your contact information until you’re ready to apply. Run a quote today to get started.
About the writer
Natasha Cornelius, CLU
Senior Editor and Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.