Ratings are sometimes applied when a consumer has a condition that can impact mortality. It’s our experience that consumers often find this offensive, like it’s a personal statement. Or, they feel that the company is making a comment on their mortality. As we like to respond – they’re not saying you’re going to die. If the life insurance company thought you were going to die, they wouldn’t be offering you life insurance at any price. They’re actually saying you’re insurable, just at a higher premium.
Here’s the non-intuitive part about higher premiums for ratings on life insurance policies. Let’s say a life insurance company prices out a 20 year term policy assuming 1 death in 1000 people over the next 20 years. Now lets add in a minor condition. If we take 1000 people with that minor condition over the next two years, lets say the statistics say that 2 out of 1000 people will die – over the next 20 years.
Now, you don’t care – it’s 2 people in 1000, over 20 years. Your doctor doesn’t care – you’re not dying now, and it’s extremely unlikely that you’re going to die. But for the life insurance company, they now need to pay out two death claims and thus charge twice the premium for those 1000 people with that minor condition.
Types of life insurance ratings
There are two general types of ratings offered, based on how they impact premiums. The first is a percentage rating, expressed as a percentage of premiums. So a 150% rating means your premiums will be 1.5X standard premiums. The second is called a flat extra and is a dollar amount per 1000 dollars of coverage. i.e. .25 means you would pay an additional 25 cents per year for every thousand dollars of coverage. For a 500,000 dollar policy your additional premiums would be 500X.25=125/year additional, or about $10 per month.
What to do if you get a rating on your life insurance policy
First, stop and consider. By law in Canada, you have 10 days after you’ve accepted the policy to change your mind, return the policy and receive 100% of your premiums back. So don’t react and refuse the policy. Take it and pay your premium, then sleep on it for a week. Alternatively, if you refuse it and change your mind later it can be difficult if not impossible to get the policy offer back.
Secondly this requires a conversation with your agent. In many cases, the offer with a rating is as well as you’ll do anywhere. In other cases, your agent may determine that you may get a better offer elsewhere. In that case, keep the policy that you have and continue to pay the premiums (this keeps your existing policy as your fallback position if you can’t find anything better elsewhere). Then have your agent apply to two or three other companies and request a ‘medshare’. For this, you would complete the application paperwork but not a medical exam. Instead, with the medshare, the other companies will get your medical information from the first company. They’ll then review, and make their offer. If you get a more attractive offer, you can take it and if not, you can refuse the other three offers and keep the one that you have. There’s no cost and no risk to doing this secondary request for review from two or three other companies in an attempt to find a cheaper policy.
Often companies will provide similiar ratings based on the same information, but occassionally there will be differences. In some cases, clients have been offered policies with no ratings after receiving a rating from another company just because the new underwriter determined that the risk was lower.
If your agent isn’t experienced or willing to take this step, you’re always welcome to contact us and we’ll provide you with our experienced opinion on it.