What's Your Life Insurance Company's Risk Assessment of You

You may choose life insurance to help payoff your bills, estate taxes, take care of a spouse or create a legacy for your love ones at your death. But the benefit of your life insurance comes at a cost of the premiums you pay for it. And that cost is in large part determined by what the life insurance company thinks your remaining life expectancy is when you apply. That's the risk you pose to them. Here are their assessment categories and reasons.

Your insurance company wants to know as much about you as they can to determine the risk you present to them. So, in addition to medical tests, which help to classify the risk the company is taking in insuring you, the company will ask for some basic medical history on you, your parents and your siblings.

Using both your own medical records and your family medical history, the company determines what risk category you're in. And then it assigns an appropriate premium for you to pay based on that category. Always, the longer you're expected to live, the smaller your premiums will be to cover a given death benefit amount.

Insurance companies generally divide their clients into four risk categories: preferred, standard, substandard, or uninsurable. Here's what each category means:

* Preferred - You are a low risk. You're not sick; you don't have a high-risk job or hobby; and you've a clean bill of health. You pay a lower premium.

* Standard - You are an average risk. You may have had some health issues in the past, but don't have a terminal illness or a high-risk job or hobby. You pay an average premium for all other similarly situated 'insured' clients.

* Substandard - You have a high-risk job, such as a pilot, scaffold worker or diver; or you have a chronic illness like diabetes, heart disease or high blood pressure. You pay a higher premium.

* Uninsurable - You have a terminal illness. You will have a hard time finding an insurer to sell you a policy. You are a high risk. In actuality, different insurance companies may categorize you somewhat differently. And that can mean lower premiums. So, it pays to shop around.

If you've had an illness or health condition, you may want to work with a professional who deals with people in similar situations to find the best deal. He'll get you quotes from many different insurance companies. Unfortunately, once you've been rated "substandard" by a company, you must disclose that to all the other insurance companies when you apply for coverage.

Curious about your life expectancy? For decades actuaries and statisticians have been tracking average life expectancy and the factors that tend to increase or decrease life expectancy. Our sex and genetic make-up are key factors in predicting longevity. Other factors - habits of health and activities - are within our ability to change.

Check out what the statistics show for you characteristics at http://gosset.wharton.upenn.edu/mortality/perl/CalcForm.html.


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Shane Flait helps you with your financial legal, tax, and retirement goals.
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