Is a better rate class worth waiting for? A premium worksheet

Picture a hypothetical applicant, Dana, 38, who has just been quoted a standard rate on a $500,000, 20-year term policy. A friend tells her that if she loses fifteen pounds and gets her blood pressure readings down, she could qualify for a cheaper class, so she wonders whether to hold off on buying. The answer is not a feeling. It is arithmetic with five inputs, and this post gives you the worksheet to run it with your own quotes.

Every dollar figure below is an illustration chosen to make the math easy to follow. None of them is a price, and none comes from a real insurer. Replace them with quotes you collect yourself.

What you are really comparing

Waiting for a better rate class is a trade. You give up something certain today, which is coverage starting now at a known price. In return you hope for something uncertain, a lower price later. The worksheet turns both sides into dollars so you can see how large the hope has to be before it is worth the risk.

Three things make the trade less obvious than it looks.

First, a year of waiting makes you a year older. Term pricing rises with age, so the "better class" price you will see next year is not today's better-class price. A part of the saving you imagined is eaten by the birthday.

Second, waiting leaves a gap. If your family needs the coverage now, every month without it is a month in which the policy you intended to buy cannot pay. That risk is small in any single month for a healthy adult, but the loss, if it happens, is the whole benefit you were planning to buy.

Third, the improvement may not arrive. Underwriters look at a bundle of factors, and not all of them move on request. Weight and blood pressure readings can change within months. A family history of heart disease does not. Part of the work is deciding which of your factors are actually in play, and life insurance rate classes: preferred plus to substandard explains how those factors are grouped into classes.

The inputs you need

Before you do any math, collect these. You can get them in an afternoon.

1. A quote for the class you would get if you applied today. Be honest about your own height, weight, blood pressure readings, medications, tobacco use and family history when you ask for it. A quote built on rosy assumptions is worthless to the worksheet.
2. A quote for the class you hope to reach, for the same coverage amount and an end date that matches your need. Ask a broker or agent to price it at your age a year from now, not at your age today. If they cannot, use the age-step method described later.
3. The date your need ends. A policy meant to cover a mortgage or until the youngest child finishes school has an end date regardless of when you buy. If you buy later, you buy a shorter term to reach the same date. The How long a term do I need? can help you pick the date.
4. How many months you would wait. Be realistic. If a doctor says a blood pressure reading takes six months to come down and the insurer wants three readings in the new range, a year is more honest than six months.
5. The coverage amount. This is the number your family loses if the plan fails during the wait.

The worksheet

Copy these lines and fill in your own numbers.

Line I is the heart of it. It tells you how likely a bad outcome during the wait would have to be before the savings stop being worth the risk. If your honest guess at that risk is below the break-even, waiting is arithmetically reasonable. If it is above, or if you simply cannot accept the possibility, buy now.

Notice that line I does not tell you the real chance of dying in a year. This post does not offer that number, because the chance depends on your age, health and circumstances, and a number from memory would be a guess. Your family's situation, not a statistic, decides how much weight to give the gap.

Worked example one: Dana's blood pressure and weight

Dana is the hypothetical applicant from the opening. She needs coverage for the next 20 years, which is 240 months, because her youngest child will finish school then. She is quoted these illustrative premiums for $500,000 of level term:

• Standard class today, age 38: $48 a month.
• Preferred class, if she qualifies in a year, at age 39: $38 a month for a term that ends on the same date. That is a 19-year term, or 228 months.

Fill in the worksheet:

Read that carefully. Waiting saves $2,856 over the whole plan, which is about $11.90 a month averaged over 240 months. In return, Dana accepts a year with no individual policy. For the wait to be a good gamble, the chance that something goes wrong in that year, either a death while uncovered or a health event that closes the door on the cheaper class, has to be smaller than about 1 in 175.

The second half of that sentence matters. The risk in the wait is not only dying. It is also developing a condition that keeps her from getting any policy at the price she hoped for. That risk is hard to price, and it is one reason people who can afford to start the policy often do.

The bridge option: buy now and switch later

There is a third path that the basic worksheet leaves out. Dana can buy the standard-class policy today, keep it in force while she works on her numbers, and apply for a new preferred policy in a year. If the new policy is approved and in force, she cancels the old one. If it is not, she keeps the original.

Add a line to the worksheet:

With Dana's numbers: K is 48 x 12, which is $576. L is 576 + 8,664, which is $9,240. M is 11,520 - 9,240, which is $2,280.

The bridge costs $576 relative to waiting uncovered, which is the price of having the coverage during the wait. In exchange, if something happens, the family is protected, and if Dana's health worsens, she still holds a policy at the class she was originally offered.

The bridge has real costs and conditions that the arithmetic hides:

• The new policy starts its own two-year contestability period. See replacing a policy resets the contestability clock: what to expect for why that matters.
• The new application is fully underwritten again, and the answers must be accurate.
• Some policies charge an annual policy fee, and some products have first-year costs. Read the illustration rather than assuming the monthly figure is the whole bill.
• Cancel the old policy only after the new one is in force and delivered, never before.
• The old policy's conversion privilege ends when you cancel it, and the new one may have different terms.

Worked example two: when the gap is small

Now take a second hypothetical, Priya, 45, who needs $400,000 for 20 years (240 months). Her quote today is $60 a month at standard. A year from now at 46, a preferred quote on a 19-year term is $56 a month, because the age step has absorbed most of the improvement. She would wait 12 months.

• E = 60 x 240 = $14,400
• F = 56 x 228 = $12,768
• G = 14,400 - 12,768 = $1,632
• J = 400,000 / 1,632, about 1 in 245

The bridge: K = 60 x 12 = $720; L = 720 + 12,768 = $13,488; M = 14,400 - 13,488 = $912.

That is $912 saved over twenty years, about $3.80 a month, in exchange for a new application, a new contestability period, and the possibility that the improvement does not materialize. Many people in Priya's spot would decide the saving is too small to bother with. Others would still do it, particularly if the improvement is nearly certain and the process is easy. The worksheet does not make the choice for her. It shows how small the prize is.

Worked example three: a large gap

The same worksheet gives a different answer when the class gap is wide. Take a third hypothetical, Sam, 34, who needs $500,000 for 20 years (240 months). He uses tobacco and was quoted an illustrative $85 a month in a tobacco rate class. If he quits and stays nicotine-free long enough to qualify for non-tobacco rates, a quote at 35 on a 19-year term would be $32 a month. How long insurers require nicotine-free time varies by company and product, and often runs a year or more, so he should ask rather than assume. The details are in how quitting smoking lowers life insurance rates.

• E = 85 x 240 = $20,400
• F = 32 x 228 = $7,296
• G = 20,400 - 7,296 = $13,104
• J = 500,000 / 13,104, about 1 in 38

Now the wait pays a lot, so the break-even is much more demanding. A risk of about 1 in 38 in a year would be high for a healthy 34-year-old, so on the numbers alone the wait might look attractive. But look at the bridge: K = 85 x 12 = $1,020; L = 1,020 + 7,296 = $8,316; M = 20,400 - 8,316 = $12,084.

The bridge still captures $12,084 of the $13,104, and it costs $1,020 to keep the coverage during the year. For a person who has dependents, the bridge is the option the numbers favor. This is also the logic behind the common advice to buy coverage in a fair class first and ask about reclassification later. Whether a reclassification request is available depends on the insurer and the policy.

Costs the worksheet leaves out

No single sheet captures everything. These are the pieces that tend to be missing.

The value of the money you save. The worksheet compares totals without any interest. If you invest the difference, the savings from waiting are slightly larger than shown, but so is the premium you could have invested elsewhere. At the amounts in these examples, the effect is small compared with the risk.

Policy fees and form differences. A premium quote is not always the complete annual cost. Compare the full illustrated annual outlay if the insurer shows one.

A second round of underwriting. The standard-class result today is not guaranteed to be repeatable. A new exam may find something new. underwriting looks at everything at the time you apply, not only the factor you worked on.

The conversion right. A new policy has its own conversion window. If you plan to rely on conversion later, compare the window on the old and new contracts. comparing conversion deadlines and products before you sign covers what to read.

The class might not be the whole story. Some applicants are offered a table rating or flat extra, which is a surcharge for a particular risk. table ratings and flat extras explained explains how it works. A worksheet built on "standard versus preferred" does not apply if the real choice is between a rating and a standard offer.

Which factors can change, and which cannot

Before you commit to a wait, sort your own factors into two lists.

Factors that can move within a year or so, with real effort: weight relative to a build chart, blood pressure readings when the cause is lifestyle and treatment is working, cholesterol numbers, and tobacco status after a quit period. Even these require documentation: records of readings, a doctor's notes and a stable medication history.

Factors that do not move on a short horizon: family medical history, some past diagnoses, a driving record that must age, and age itself. If your hoped-for class depends on one of these, waiting buys you nothing. The guide to how life insurance premiums are calculated describes how the factors combine into a price.

If you are not sure which list you are on, ask a broker to run an informal inquiry with your details and tell you which factor is holding you back. Some brokers will do this before you submit a formal application. A formal application can leave a record in the MIB, the industry's shared database (see The MIB report: what insurers know about your history), so ask whether an informal inquiry is possible first.

A way to decide

Use the worksheet results with this short decision list.

1. If your dependents need the coverage now and the bridge savings (line M) are still meaningful, buy now and plan to re-apply later.
2. If line M is small, as it was for Priya, buy now and do not re-apply. The extra effort is not worth a few dollars a month.
3. If line M is large and your improvement is mostly in your control, buy now, document your progress and re-apply when you qualify. a 12-month plan to qualify for a better life insurance rate class describes a month-by-month approach.
4. If you have no dependents relying on the coverage yet and savings are large, waiting uncovered can be a defensible choice. Know that you are choosing a risk, and write down the date you will revisit it.
5. If the improvement depends on a factor that will not change, stop waiting and shop the policy you can get. Other insurers weigh the same factor differently, so a second quote can matter more than another year.

Your own situation decides the final step. A fee-only planner can help weigh the choice against the rest of the household budget, and the state insurance department can tell you what rights you have if an offer seems wrong.

Key takeaways

• Waiting for a better rate class is a trade of certain coverage now for an uncertain lower price later, and the worksheet prices both sides in dollars.
• A year of waiting also adds a year of age, which can erase much of the saving, as the second example shows.
• Buying now and re-applying later, then cancelling only after the new policy is in force, usually costs a small, known amount for the bridge year and avoids the gap.
• Large class gaps, such as tobacco to non-tobacco, change the answer far more than small ones, so run your own numbers.
• Only some factors can improve in a year; check which of yours can before you decide to wait.