1 January 2013 0 Comments

Unravelling The Mystery Of Life Insurance Premiums

agent explainsI’ve been using terminology about life insurance premium classifications that make a lot of sense to me, but could be confusing to the layman.  So, here’s an attempt at clarification.

In prior blogs I described the basic premium classes used by most life insurance companies today.  Those classes, listed from the lowest to the highest premium, are:

  • Preferred Best Non-tobacco User (PBNT)
  • Preferred Non-tobacco User (PNT)
  • Standard Plus Non-tobacco User (SPNT)
  • Standard Non-tobacco User (SNT)
  • Preferred Tobacco User (PT)
  • Standard Tobacco User (ST)

Not every company has all of these categories and they may use slightly different language to describe the same class, such as replacing the words “Preferred Best” with “Elite.”  Some companies may discontinue the PBNT and PT classes over a given age (70 for example) so that their best classes at those advanced ages would be PNT or ST.  In these instances they are blending the two best premium classes into a single premium category, so if a person can’t qualify for the absolute best premium, they might be better off with a company using this blended approach.

Determining the class into which you will fall depends on many factors:  your medical history, current findings and build; family medical history and longevity; driving record; criminal record; substance abuse; and dangerous avocation or occupation.

In addition to all of these premium classes, there is one set of premiums for males and lower premiums for females.  This is because the life expectancy of females in the United States is longer than that of males.  Of course, the premium also increases based on the age of the applicant when the policy is issued (nearest birthday for most companies; last birthday for some).

Why are there so many classifications?

Life insurance premiums are based upon the probability of death at any given age.  Years ago when insurance companies used a single premium class for both tobacco users and non-tobacco users and Standard was as good as the premium ever got, the people who were in excellent health were overpaying and those at the other end of the spectrum were paying too little.  Since Life Insurance is not a mandatory form of protection, the fairest premium to charge is the one that best relates to the actual mortality experience of others in your risk pool.  You still get the advantage of insurance—sharing the risk—while not paying extra for those whose risk is greater due to either life style or genetics.

When people can’t qualify for any of the above classes, insurance might still be available with extra premiums charged.  That’s what I’ll tackle in my next edition. 

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