One of the problems many people face in getting life insurance is that life insurers are fairly particular about the conditions under which they will issue it, and while they are inclined to offer it to most people, they will only do so at a steep cost if certain conditions are present. Many people fall within the classification of “high risk” based on the activities in which they participate or the medical condition they have. Understanding how high risk insurance works is critical for these people who need life insurance, but may have difficulty obtaining it.
High Risk Defined
Life insurers classify certain people as high risk based on two primary reasons: They participate in what they deem to be hazardous activities or occupations, or they have a medical condition that falls they consider to be a higher mortality risk.
Hazardous activities or occupations include scuba diving, aviation activities, foreign travel to countries on a watch list, or simply driving if you have a record of violations or driving under the influence charges. High risk medical conditions include heart conditions, diabetes type I or II, obesity, elevated liver enzymes, sleep apnea and hepatitis B or C.
Medical underwriters from the various life insurance companies apply their own set of criteria, measurement and judgment to ascertain the level of risk that these conditions present to the company, and apply their own ratings systems to determine what their assumption of the risks will cost the insured if they are willing to issue a policy.
High Risk doesn’t mean No Insurance
The good news for high risk individuals is that medical underwriters are now applying clinical techniques to evaluate mortality risk with a greater reliance upon the advances of medical science and how lifestyle changes can impact life expectancy. Recognizing that medical advances and abrupt life style changes can extend lives significantly, life insurers have expanded the range of high risk situations they are willing to approve.
With all of your medical information before them, underwriters will determine the risk costs the insurer will undertake to provide coverage based on risk classifications. Each classification has its own pricing table that is based on age, gender and the amount of insurance. If a high risk individual can be placed in one of the classifications they will be offered a policy.
- Super Preferred or Preferred Plus
- Standard (there may be several classifications of standard)
Pricing High Risk Policies
The very best rates are offered to super preferred cases. A very small percentage of applicants are able to qualify for these rates. Most cases that are considered to be low risk are issued preferred status. If a minor medical condition is present, a standard rate will apply which is typically about 25% above the preferred rate.
If the policy is rated sub-standard it will then fall within another classification based on lettered tables that contain their own pricing structure. The tables are lettered from “A” to “J”. Sub-standard rates are based on an incremental percentage increase over the next lowest letter rating. For instance, an “A” rated policy is likely to priced 25% higher than a standard rated policy. Then, a “B” rated policy might be priced 25% higher than an “A” rated policy, and so on.
The difference in table ratings is the degree to which they consider a certain condition to be a higher risk factor. For instance, a person with diabetes that is under control may be able to qualify for a table “A” rating while someone who has diabetes in combination with other medical conditions may fall within a table “D” classification.
The difference in ratings is also determined by the length of history behind a medical condition. A recent cancer onslaught would be rated much higher than a cancer condition that existed more than five years ago. Often times an escalated rating is applied when multiple conditions are present that increase the mortality risk, such as diabetes or abnormal EKG readings complicated by excessive weight.
Alternatively, the insurer could apply a flat dollar rating instead of or in addition to a letter rating, such as $2.00 for every $1,000 of life insurance coverage. In many cases, these dollar ratings are assigned temporarily depending on the condition for which it is applied. For instance, if the insured is in the recovery phase of
Applying for High Risk Coverage
The adage, “people who actually need life insurance can’t get it”, has never really been totally true, but now, with the advances in medical science, it may only still apply to the few unfortunate people whose conditions are deemed to be terminal or beyond the level of risk an insurer is willing to assume, even at a steep cost. For everyone with “high risk” conditions, obtaining life insurance is not only a possibility, it is very likely if they follow the right procedures in applying for it.
A common mistake that people make in this situation is that they apply with several different companies in the hopes of finding the one that will rate their policy the most favorably. The reality is that this approach could jeopardize your chances of not only getting a favorable rating, but of getting a policy at all.
It is important to know that the results of any underwriting decision are reported to the Medical Information Bureau (MIB) which contains all of your medical information and history. It is all the primary source of information used by underwriters in the evaluation of your application. If it is found that you have applied to other insurers and have been turned down or have received a table rating, the insurer uses that information in its own evaluation.
The best course of action is to work with a knowledgeable and well-connected insurance broker who can identify the life insurers most likely to consider your situation with more favor. They should have extensive experience matching high risk individuals with the right companies based on the risk and a company’s propensity to underwrite certain risks. They are the best positioned to shop your case to the companies that are most likely to undertake your risk.
Also, they should be experienced in guiding individuals through the application process including the medical underwriting requirements. Often times, they can be influential in reasoning with the insurer on obtaining a more favorable rating.