Most of the time life insurance rates fall within a rate class. Generically most company’s best rate is call preferred plus. This is the rate that people get when they are fit and really don’t have much for issues. Treatment for cholesterol and blood pressure can get best rate class with some companies, but most put those things off to their second best rate called preferred.
People can be preferred for build (height and weight), cholesterol too high or too low, blood pressure too high, family history and any number of other reasons that a company draws a line in the sand between their best rate and their next best rate. If you’re a little heavier or shorter or are a tortured soul in some other health way, you might get bumped to the third best rate, usually called standard plus. Here you might find someone who has had a very low stage and grade melanoma, has chronic depression that has never caused any real problems or someone whose height and weight have grown even more disproportionately away from each other. And then there is the standard rate.
We find very few people who take solace in the fact that the standard rate, the fourth best rate class, is really average. It’s where most people end up. Depending on what kind of underwriter and agent you have, standard is one of those approvals that can be right on the money or a slap in the face. That’s why we emphasize that the outcome isn’t always pretty if you use and average agent who uses an average company. We’ve talked often about how most companies use standard as a catch all approval for anything the underwriter doesn’t want to work too hard at. Make sure you use an agent that understands your issues and has at least 20 companies that he or she regularly shops.
We’ll get into table rating, what happens after the standard rate, in another post, but let’s go where we started, flat extra charges. A flat extra, simply put, is padding for the insurance company when there is a life insurance risk that their regular rating system doesn’t quite cover. A good example would be cancer in some cases. In low stages and grades a company might be able to get to standard or better. In the highest stages and grades they would like decline it. But, for instance, I have a client I am working with who had a Stage T2a melanoma. Most companies didn’t want anything to do with it, but one company said they would approve it at standard and a $7.50 flat extra per thousand for 6 years. Put in numbers let’s say this guy needed $100,000 of 20 year term. If the standard rate for that was $500 a year, that would be the base rate of the policy. With a $7.50 flat extra there would be an additional $750 a year ($7.50 x 100) for a total premium of $1250 a year for the first six years. After that the flat extra would go away, guaranteed, and the price would go down to $500 a year for the rest of the 20 years.
So, why a flat extra? A lot of times you can tell what an underwriter believes by a flat extra charge. In this case the underwriter believes there is a moderately high risk of recurrence in the first six years and that if a person makes it past that they come back in line with a standard rate. So, because they believe there is higher risk in the first six years, they create a little padding with the flat extra.
They also use flat extras for permanent reasons. Some companies believe private aviation is abnormally dangerous and if you want insurance through them, depending on the type of flying you do, they might charge a permanent flat extra of anywhere from $1.25 per thousand to $15 per thousand. We have a pool of companies that don’t share that risk assessment with private pilots and we can often get preferred or preferred plus rates for pilots with enough experience and who fly enough annually to keep current (stay in practice).
Again, if you’re using an average agent using a middle of the road company, they may not be able to overcome the flat extra charge for you. At least by using an agent with multiple companies you have a chance of being placed with a company that has a different mortality risk view of your situation. Where one company might want a flat extra, another could approve you at preferred. If you have any questions or feel that you are unfairly being charged a flat extra, or if your agent won’t shop beyond the company that offers a flat extra, call or email us directly. We can help.
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