When choosing a life insurance policy, the terms rating class or risk factors can be confusing. Life insurance companies assign rating classes to determine how much a policy will cost. Rating classes help life insurance companies calculate the risk exposure that they can endure when signing up a policyholder. So, what are rating classes? What is their importance in calculating premiums?

What Are Life Insurance Rating Classes?

Life insurance rating or risk classes are classifications used in the insurance industry to calculate the risk level of an individual. This is then used to calculate the premiums for a life insurance policy. The classes reflect the risk profile of an individual who signs up for a policy.

Importance of understanding rating classes

Understanding the rating classes is essential to both the policyholder holder and life insurance companies. Here are some of the reasons why:

• Premium determination: Insurers use rating classes to calculate total premiums that you will pay as a policyholder. Individuals with better health and lower risk factors typically pay lower premiums for their policy.
• Transparency and trust: Rating classes help establish trust between you and the insurer. They provide a transparent view of premium calculations. This is key to building confidence in the insurer’s process.
• Future reassessment: Risk classes provide a basis for future reassessment. A policy is not fixed and as the policyholder, you can request a reassessment to align with your current conditions. When you take an intentional step to improve your health an insurer can reassess your policy to lower your premiums.

Common rating classes

Although each category may differ from one insurance company to the other most life insurance companies categorize rating classes as follows:

• Super preferred: This classification describes individuals with excellent health and a clean medical history. The individual must not have any medical issues in their family before a specific age. An insurance company considers this as the best risk class as it offers low exposure to them. As a result, individuals classified as super preferred pay the lowest premiums for life insurance. This class is also referred to as preferred elite or preferred plus.
• Preferred: This class is comprised of individuals who have good health but do not meet all the criteria for super preferred. This class is a small step down from the super preferred with the existence of a few but not prominent health issues such as higher cholesterol. Policyholders in this class pay lower premiums as compared to the standard class but higher than those in the super preferred class.
• Standard risk class: This class includes individuals with above average health with a normal life expectancy. An average person in the population typically falls within this risk classification. You do not need to have perfect health to qualify for this class. You pay slightly higher premiums than in the preferred class.
• Substandard risk class: This class is also referred to as table rating. The insurer further breaks down the class into tables labeled A, B, C, D, E. Table A costs 25% more than the Standard risk class. The premiums for the rest of the classes are further increased by 25% as you go down. It is comprised of high risk individuals with prevailing health issues and higher risk factors.
• Preferred smoker: This is a smoker classification class comprised of individuals who would have been placed in the preferred class were it not for their past tobacco use.
• Standard smoker: This class includes individuals who have qualified for the standard risk if they had not used tobacco.

Factors Influencing Rating Classes

There are several factors that influence rating classes used by life insurance companies. Some of them include:

Health and medical history

Health and medical history are key elements in determining life insurance risk classes. The insurer reviews your medical history to identify any preexisting health conditions or past illnesses that could pose a higher risk. While reviewing the medical history, the insurer examines chronic conditions, past surgeries, and any other serious illnesses that may elevate your risk profile. For example, individuals with a history of high blood pressure are likely predisposed to the risk of stroke and heart disease.

Lifestyle choices

The lifestyle you adopt influences the risk class you will be placed in and, consequently, the life insurance premiums you will be paying. Insurers see life choices such as smoking and alcohol use as prerequisites to health issues. Smoking has been linked to lung cancer and heart diseases which can lead to premature death. A policyholder who is actively smoking or engaged in alcohol abuse is considered a high risk and is assigned to a lower class where they pay higher premiums.

Age and gender

Age and gender correlate directly with the life expectancy and the overall health of an individual. Generally younger individuals have a longer life expectancy and typically receive more favorable rating classes than older individuals. This means they pay lower premiums as they pose a lower risk to the life insurance company.

As you age, you are more likely to develop chronic conditions due to the weakening of your immune system. This can predispose you to age-related chronic conditions such as diabetes and high blood pressure. An insurance company will, therefore, place you in lower risk classes.

Statistically, women tend to live longer than men. This means a 30-year-old woman may qualify for higher risk classes and lower premiums than a man of the same age for similar coverage.

Occupation and hobbies

An insurance company uses occupation and hobbies to estimate their risk exposure. High-risk jobs and risky hobbies attract higher premiums due to the increased likelihood of injury and early death. If you work in the mining industry, an insurer will want to know what you mine, how deep you go, and any chemicals you are exposed to. They will also investigate your driving records, looking for any citations, fines, and offenses. If you are in low-risk professions such as teaching and office work, you are more likely to receive a favorable insurance rating.

Family medical history

When applying for a life insurance policy, an insurer requires you to disclose the medical history of your immediate family members. They use this history to predict any predispositions to inheritable diseases and early onset conditions such as cancer. For example, an insurer considers you a high risk if any of your parents or siblings were diagnosed with cancer before the age of 60. You will, therefore, be charged higher premiums than an individual with no family history of illnesses before 60.

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How Rating Classes Impact Premiums

Rating classes have a direct impact on the premiums you pay as a policyholder. During sign-up an insurer will assign you into a specific class to determine your risk profile. A higher risk class means that you have a low-risk profile and, therefore, you pay lower premiums. A lower risk class means that you pose an increased risk to the insurer and, therefore, you need to pay higher premiums.

How to Improve Your Rating Class

It’s key to note that rating classes are not cast in stone. With time, you may be able to improve the risk class assigned during the policy sign-up. Improving your risk class helps in lowering the premiums you pay. Some of the ways to improve your rating class include:

Tips for a healthier lifestyle

Good health is the biggest determinant of risk classification. It, therefore, goes without saying that improving your health will go a long way in helping lower the premiums you pay for an insurance policy. Here are tips for a healthier lifestyle:

• Maintain healthy eating habits: Focus on consuming nutrient-rich foods such as whole grains, fruits, and vegetables. You should also avoid processed foods, excessive sugar, and saturated fats. These contribute to weight gain and pose a risk to cardiovascular health.
• Exercise regularly: Regular exercise such as walking, cycling, and swimming strengthens your lungs and improves cardiovascular health. Regardless of the exercise, consistency is key when exercising regularly. If your occupation involves long hours of sitting, it’s advisable to regularly exercise to reduce the risk of sedentary lifestyle diseases like diabetes and heart disease.
• Develop healthy sleeping habits: Healthy sleeping habits improve your overall well-being, ensuring your body enjoys enough rest. You can accomplish this by maintaining a regular sleeping schedule and avoiding caffeine and gadgets one hour before sleep.

Importance of regular medical check-ups

It is crucial that you visit your healthcare provider regularly to monitor and manage your health. This helps you stay on top of your health and detect problems before they become serious. Regular checkups can also include preventive care, such as screenings and vaccinations.

Steps to quit smoking or reduce alcohol intake

One way to improve your overall health and your life insurance rating is quitting smoking and reducing alcohol intake.

Here are a few steps on how to quit smoking:

• Identify triggers: The first step is recognizing emotions and situations that trigger your urge to smoke. You should then develop strategies to avoid these triggers and develop healthier alternatives.
• Use nicotine replacement therapy (NRT): NRT helps recovering tobacco users manage the withdrawal effects. It involves using nicotine patches, inhalers, gum, lozenges, and nasal spray. You should consult your health care provider to recommend the best replacement to use.
• Seek professional help: Professional help will be essential for anyone seeking to quit smoking. A professional counselor will help you develop coping strategies that are key to quitting smoking.
• Monitor progress: Regularly measuring and evaluating your progress helps keep you motivated and also see your progress. You can also use these sessions to identify any instances where you faltered in the past and need to improve.

If you are seeking to reduce your alcohol intake here are a few steps that may help:

• Set clear goals: It is essential to set clear goals on what you need to achieve, for example, stipulating how you want to reduce alcohol intake. Clearly indicate whether you need to reduce the intake by the number of days in a week or the number of drinks you will have on those days. Write your intended goals and use a diary to track and record your progress.
• Seek help and accountability: Talk to professionals and friends about your goals to help you stay on track. You can join support groups such as Alcoholics Anonymous (AA) to help you focus on reducing alcohol consumption.
• Find alternative activities: For the days that you have chosen to be alcohol-free, identify alternative healthy activities to engage in that take you away from where alcohol may be present. This helps keep your mind off the alcohol and activities that trigger you to drink.
• Monitor and reflect: Regularly review your progress and reflect on how you are meeting your set goals. After reviewing, make sure to adjust your goals if you have found it challenging to meet them.

Common Misconceptions About Rating Classes

While understanding rating classes is crucial when choosing a life insurance policy, misconceptions and myths about them can lead to confusion and misinformed decisions. Here are a few:

• Once you sign up, rating classes cannot be changed.
• Rating classes make insurance expensive

Clarifying myths and misconceptions

Here is the clarification for these myths and misconceptions:

• Once you sign up, rating classes cannot be changed: This misconception is wrong. When you sign up for a policy, you can request a reassessment if you believe that your health has improved. This could change your rating class which could lower your premiums.
• Rating classes make insurance expensive: Rating classes in themselves do not make life insurance policies expensive. Insurers use the data you provide to place you into existing classes in order to determine how much premiums you should pay.

Understanding the Underwriting Process

During the underwriting process, the insurer seeks to know you as much as possible in order for them to create the best policy for you. The whole process is driven by their desire to learn how much risk you pose and the premiums you should pay.

You will, therefore, be asked to supply several pieces of information and documents, including medical records, lifestyle, and background assessments. Using this information the insurer will then classify you in a risk class that matches your risk profile. With this, they will calculate the premiums you need to pay for specific insurance coverage. Once you accept the policy you will then sign up and make the first premium payment.

Join Fidelity Life Today

Before signing up for a life insurance policy, understanding your risk class is key to securing the best coverage and premium rates. Many policyholders fail to appreciate the role of their lifestyle and health in the policy they sign up for.

At Fidelity Life, we are committed to providing a transparent, open, and helpful underwriting process. We will walk you through the whole process, guiding you to the best insurance coverage. Get a life insurance quote today and secure the protection and peace of mind your family deserves.