4 January 2013 0 Comments

Extra Premiums For Extra Risk

extra riskLast time I covered the various premium classes for life insurance.  But, what about applicants with medical histories or other underwriting concerns that preclude their obtaining insurance in any of those classes?  They still might be eligible to receive a policy with an extra premium charged.  These extra premiums are classified as Table Ratings or Flat Extras.  Here’s how they work:

Table Ratings

Table Ratings generally charge an extra 25% of the cost of pure protection per table.  Thus, a Table 2 would charge 50% extra; a table 4 is 100% extra, etc.  What do I mean by “pure protection cost?”  With term insurance, the entire premium is considered pure protection, so if the normal premium for a 20 year term policy is $1,250 per year, a person rated Table 4 would be charged about $2,500 (slightly less due to a constant policy fee).

But, it may not be quite that simple.  If a person is a non-tobacco user most companies use their Standard Non-tobacco premium as the multiplier, but some might use Standard Plus Non-tobacco rates.  This could result in the premium for a Table 4 rating with one company being less than that of a Table 2 rating with another company.

Table Ratings added to either Universal Life or Whole Life will not result in a simple percentage increase to the total premium.  This is because the multiplier is applied to the pure cost of insurance, rather than the total premium.  This can sometimes result in the premium for a UL policy being less than that for a term policy with the same Table Rating.  Always check this out, especially at advanced ages.

Table Ratings are a permanent charge, but if the underlying reason for the rating is corrected, then one should request a removal or reduction in the rating.  An example of this would be when the rating was assessed due to obesity, but the insured has now lost significant weight and maintained it over no less than one year.  Another example is when a person who was issued a policy as a tobacco user and quits smoking for at least a year.  If the issuing company won’t budge from their current charges, try another company.

Flat Extras

Whereas Table Ratings are applied over the entire premium paying period of a policy, Flat Extras are charged for a stipulated number of years and then automatically removed.  Thus, if you are purchasing a $100,000 policy with a Flat Extra premium of $5.00 per thousand for 7 years, the extra premium will be $500.00 per year for 7 years.

Flat Extras are generally used when the associated medical condition’s risk decreases over time.  An example would be Cancer, where the risk of reappearance diminishes after a number of years following culmination of radiation or chemotherapy.  It is possible that a policy might include both a Table Rating and a Flat Extra and there can actually be Flat Extras of different amounts and durations on the same policy.

Lock in the premium.

If you have been issued a policy with an extra premium due to a medical history, lock in the premium.  Pay for the policy.  Once it’s issued, the insurance company can’t change their mind and then you can see if you can do better.  You can drop the policy; they can’t drop you as long as you pay the premium.

Coming up…resolutions for 2013.

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