What are life insurance classifications?
How are life insurance classifications determined?
Insurance companies look at a wide range of health and lifestyle factors during underwriting to set an individual's classification, including:
The PI will have to take a medical exam — unless they qualify for accelerated underwriting — and answer questions about their health. This includes:
Treatment for existing conditions
The insurance company might also request an attending physician’s statement (APS) from their doctor to learn more about their health history.
Height and weight
Each life insurance company has its own Build Table that places the PI in a health classification based on height-to-weight ratios, similar to a BMI (Body Mass Index) measurement. While each company’s table is different, a PI is more likely to receive higher rates if, according to the CDC guidelines, they are considered underweight, overweight, or obese.
Insurance companies also consider a PI's weight history. Losing weight can help the PI save money on their life insurance premiums, but they won’t benefit much from sudden or short-term weight loss.
Smoking, using chewing tobacco, or vaping will significantly raise an individual's rates; smokers pay up to three times more for life insurance than non-smokers.
Here’s how smoking affects a PI's health classification:
Preferred Smoker: The PI would probably fall into the Preferred classification if they didn’t smoke. This will usually apply to occasional smokers or people who use smokeless tobacco.
Standard Smoker: The PI would otherwise fall into one of the Standard classifications. If they want premium savings, they need to kick their smoking habit (for at least a year) before applying for life insurance.
While quitting smoking can decrease the cost of an individual's life insurance over time, ex-smokers will still see an initial hike in their premiums. The longer a PI doesn't smoke, the more opportunity there is to get lower premiums when they apply for a policy.
Alcohol and drug use
Having a beer every once in a while won’t affect an individual's premiums, but insurance companies will have some concerns if they have abused drugs and/or alcohol.
Many major insurers offer non-smoker classifications to marijuana users, depending on how often they smoke.
Family health history
During an initial evaluation, a PI will likely be asked to disclose if anyone in their family has been diagnosed with, treated for, or died from:
Family health history is particularly important when it comes to conditions that can be inherited. If a PI's family has a history of illness, it will count against them, especially if a close family member died before age 60.
This is a catch-all category that evaluates how risky the PI's lifestyle is based on details like:
For drivers, multiple moving violations will raise their rates, while DWIs within the last five years will result in a declined application.
If the PI is a base jumper or a fan of flying single-engine planes, their chance of premature death is higher than someone who likes to curl up with a nice book on the couch. They will either have an exclusion in their policy — meaning if their death is caused by a specific activity, their policy won’t pay out — or have a flat extra added to their premiums.
A flat extra fee costs about $2 to $5 for every $1,000 of coverage a policyholder has. That’s an extra $5,000 a year on a $1 million life insurance policy.
A misdemeanor isn’t going to hurt a PI's chances of getting life insurance; it probably won’t even affect the classification they receive. But if they have a felony on their record, they'll want to wait for as long as they can to apply for life insurance to avoid high premiums.
Each insurance company has its own criteria for determining how much each of the factors above affects a PI's classification. Insurers also allow some flexibility in assigning classifications based on other criteria, called stretch criteria. The different approaches to setting classifications mean a PI will probably see different quotes from company to company.
How life insurance classifications impact a PI's rates
A Preferred Plus classification earns the lowest rates, with prices increasing gradually for each classification from there.
A $500,000, 20-year term life insurance policy costs $25 to $30 per month for a 35-year-old non-smoker in a Preferred health classification and $77 to $93 per month for smokers. Compare that to $38 to $46 per month in a Standard non-smoker health classification or $101 to $129 in a Standard smoker classification.
While there isn’t a major increase if a PI falls one or two health classification levels, the gap widens significantly if you compare Preferred and Substandard classifications.
How to get a better life insurance classification
A PI's life insurance classification is the final determinant of how much they'll pay to protect their family. Here’s how they can increase their chances of a favorable classification:
Apply early: Life insurance rates increase by an average of 4.5-9% a year every year an individual puts off applying, so they'll save more the younger they are when they apply.
Improve your health: Some health factors, like an individual's family history, are out of their control. But if they maintain health improvements for a year or longer, they're more likely to get competitive rates.
Quit smoking: In the example above, a PI could save at least $63 per month — $15,120 over the life of a 20-year policy — just by going from a Preferred smoker class to a Preferred non-smoker class.
Even if a PI has a chronic illness, it’s not impossible to find a budget-friendly policy; for conditions like diabetes, insurers may work with a PI if they can show that they're managing the condition via medication and other recommendations from their physician.
Since every life insurance company weighs risk and assigns health classifications using different criteria, comparing rates from multiple providers will help PIs find the best policy for their needs.