5 August 2014 0 Comments

Why You May Not Be Eligible For The Lowest Premium

shutterstock_185407481Years ago the majority of life insurance applicants received a policy with the lowest premiums.  You could smoke two packs a day and didn’t have to provide a blood draw.  Insurance companies paid little attention to family medical history. The problem with that simplistic pricing approach was that the person in pristine health paid more than what he should have and the nicotine addicted couch potato whose father keeled over at age 55 from a heart attack paid less than his fair share. Standard premiums were the best available and were what were issued to both of these categories.

Then, in the 1970’s the premium advantage for non smokers was introduced followed several years later by the concept of preferred and then preferred-plus premiums for the best risks.  The result of these concepts was to produce lower premiums for many people, but higher premiums when justified by medical records, life style or family history.  Since no one is legally required to carry life insurance, this approach of assigning premiums appropriate to an individual makes sense.

The problem with more finite risk calculation in pricing is that insurance companies always use their lowest premiums in advertisements and agents often quote this premium to get your attention.  Since most insurance companies will only issue their best preferred-plus premiums to less than 25% of applicants,  many people get an unpleasant surprise when their premium is more than what was quoted.  Very often the higher premium is based on factors that seem so insignificant that their doctors have never voiced a concern.  It might also be the result of a slightly irregular blood test detected on the insurance exam or the fact that a parent had contracted heart problems prior to age 65.

How could such minor imperfections possibly knock you out of the best premium category?

In order to produce the lowest possible premiums, even a condition that is apt to reduce life expectancy by only a couple of years will affect that applicant’s premium.  Often this less than perfect factor may not even be mentioned by your doctor, but it still is of concern to the insurance company attempting to produce the correct premium.  In order to qualify for the absolutely lowest premium, having a family medical history void of early cardiovascular problems is usually essential…something over which you have no control and which agents occasionally forget to ask you about.

So, there are many reasons why you may not be eligible for the lowest premium.  There are also ways to mitigate against these adverse affects…

And that’s where we go next…controlling the premium.

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