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What is term life insurance?
Term life insurance is quite simply death benefit protection only. Term life is the least expensive coverage you can purchase. There are basically two types of life insurance . Term and Permanent. You can click here for a quick video of the differences.
When looking to protect your income, mortgage, children’s education, etc. term life insurance will offer you the biggest bang for your buck. This article will attempt to offer you information on term life insurance and what qualifies as a preferred risk and a non-preferred risk.
Types of term life insurance
Nowadays most term life policies that are sold are one of the plans below:
- Guaranteed 10 Year level term- This plan will lock in guaranteed level rates for a period of 10 years. After the initial 10 year period is over your policy rates typically adjust to yearly increasing rate.
- Guaranteed 15 Year level term- This plan will lock in guaranteed level rates for a period of 15 years. After the initial 15 year period is over your policy rates typically adjust to yearly increasing rate.
- Guaranteed 20 Year level term- This plan will lock in guaranteed level rates for a period of 20 years. After the initial 20 year period is over your policy rates typically adjust to yearly increasing rate.
- Guaranteed 25 Year level term- This plan will lock in guaranteed level rates for a period of 25 years. After the initial 25 year period is over your policy rates typically adjust to yearly increasing rate.
- Guaranteed 30 Year level term- This plan will lock in guaranteed level rates for a period of 30 years. After the initial 30 year period is over your policy rates typically adjust to yearly increasing rate.
- Guaranteed Return of Premium (ROP) term– this plan will allow you to lock in any of the level periods mentioned above, but with the option of surrendering your policy at the end of the chosen term and receive all paid premiums back. The return of premium term plan is offered at a higher rate than the typical level term plan.
Which is the best term life plan?
Choosing which term life plan is best is based on each individuals particular situation. Much depends on why you are actually buying the insurance.
As an example, if your primary need for life insurance is to make sure the balance on your mortgage is paid if you die, then a term plan that equals the length of your mortgage would work.
So, if you have 20 years remaining on your mortgage, a 20 year level premium plan would work nicely.
If you have different needs for protection such as paying for children’s education, making sure your spouse has enough income, etc. then laddering different term plans can make sense.
For instance, if you need coverage until your kid’s graduate college, but also need coverage to cover the mortgage, a combination of policies may work nicely and help lower the cost of the coverage.
What is a preferred risk?
When you apply for life insurance protection you typically must go thru an underwriting assessment. This assessment will determine what underwriting risk class you qualify for.
Sometimes the assessment can be as simple as answering the questions on an application. Other times the assessment may include, not only medical questions, but perhaps even a short visit from a nurse to record essential medical information.
This information may include height/weight, blood pressure check and a blood and urine sample.
The results of this information is then transmitted to the underwriting insurance company for evaluation. An underwriter may also want to see any current medical reports from your person physician or specialist.
In fact, the records from your personal doctor goes a long way in helping an underwriter determine what class to place you in.
It is important to remember that all life insurance companies evaluate health and lifestyle differently. What one carrier may see as a possible reason to increase your premium, another carrier may have no problem with.
For this reason alone, it is important to use a knowledgeable agent who has practiced insurance for many years.
An individual who is evaluated an approved insurance for a preferred type risk will typically fall in one of the following categories:
Examples-
- Preferred Best- Excellent medical history with no abnormal lab findings or adverse medical conditions.
- Preferred- Excellent medical history with perhaps slightly high blood pressure or high cholesterol.
- Standard Plus- Good medical history but perhaps build and blood pressure history.
- Standard- Good health, but build, blood pressure, history of diabetes, etc. exclude them from one of the above classes.
Aside– for this conversation any of the above classes still technically qualify as a preferred risk (even though the preferred classes have a subset of categories such as standard plus and standard). Anything outside of one of the preferred risk categories is typically known as non-preferred.
Now, in addition to health history, other criteria can also cause someone to not qualify for a preferred category. Some of the things that can come into play other than health history include:
- Motor vehicle record
- Foreign travel
- Hazardous activities such as auto racing, rock climbing, scuba diving.
What is a non-preferred risk?
A non-preferred risk quite simply can be anything that does not qualify you under the preferred risk criteria. Typical non-preferred risk include things such as:
- Diabetes history
- Heart disease history
- Multiple Sclerosis history
- Auto racing history
- Scuba diving history (if over 100 feet)
- Sleep apnea history
- Motor vehicle report history
- Foreign National
- Lupus
- Cerebral Palsy
- Peripheral artery disease
- Kidney Disease
Now, again it is important to remember that each life insurance company underwriters term life differently. What one carrier may see as a non-preferred risk, another may classify as a preferred risk.
It also important to remember that not all policies are approved for sale in every state.
Here is an example…
Joe needs $500,000 of term life to protect his family. Joe has a history of diabetes, but otherwise is in excellent health. Joe is a non-tobacco user and takes no medication other that an oral pill for his diabetes history.
Joe applies to several different insurance companies. (not recommended) One of the insurance companies approves him at the standard risk class. The other carriers both approve him as a non-preferred risk due to his history of diabetes.
The rate difference between the companies that issued him non-preferred versus the preferred(standard category) is several hundred dollars more per month. This makes a huge difference over the life of the policy.
Table ratings-
When an insured falls into the non-preferred category, insurance companies typically add a rating to the policy. This rating represents a percentage of extra premium to cover the additional risk that the insurer perceives. This rating is known as a table rating. Most insurance companies add 25% extra cost per table rating. So, for instance someone that is issued an approved policy at a Table B rating would pay an additional 50% more in premium cost above the standard risk class.
Most life insurance carriers offer table ratings from Table A (25%) up to Table H(200%). Typically, any individual rated above a Table H is declined an offer for coverage.
Conclusion-
Term life insurance is a great way to provide maximum insurance protection at the lowest costs. In order to find out which risk class you would qualify for you need the assistance of a independent agent with many years of experience. Fortunately, you have landed on this page. If you would like a free analysis of your coverage needs, please contact us at 1-888-393-9003 or mike@specialriskterm.com Thank you for reading this blog.
